<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997.
REGISTRATION NO. 333-25409
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
ARIS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 7379 91-1497147
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
FORT DENT ONE, SUITE 250 CT CORPORATION SYSTEMS
6720 FORT DENT WAY 520 PIKE STREET
SEATTLE, WASHINGTON 98188-2555 SEATTLE, WASHINGTON 98101
(206) 433-2081 (206) 622-4511
(ADDRESS AND TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE NUMBER
REGISTRANT'S OF
PRINCIPAL EXECUTIVE OFFICES) AGENT FOR SERVICE)
----------------
COPIES TO:
<TABLE>
<S> <C> <C>
WILLIAM E. VAN VALKENBERG, ESQ. NORBERT W. SUGAYAN, JR., ESQ. RONALD J. LONE, ESQ.
BRADLEY B. FURBER, ESQ. GENERAL COUNSEL LAURIE A. SMILEY, ESQ.
JEFFREY M. HEUTMAKER, ESQ. ARIS CORPORATION CHRISTOPHER J. VOSS, ESQ.
VAN VALKENBERG FURBER LAW GROUP P.L.L.C. 6720 FORT DENT WAY, SUITE 250 STOEL RIVES LLP
1325 FOURTH AVENUE, SUITE 940 SEATTLE, WASHINGTON 98188-2555 3600 ONE UNION SQUARE
SEATTLE, WASHINGTON 98101-2509 TELEPHONE: (206) 433-2081 600 UNIVERSITY STREET
TELEPHONE: (206) 464-0460 FACSIMILE: (206) 433-1182 SEATTLE, WASHINGTON 98101-3197
FACSIMILE: (206) 464-2857 TELEPHONE: (206) 624-0900
FACSIMILE: (206) 386-7500
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without
par value............. 2,320,800 $15.00 $35,280,000 $10,691
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
Previously paid.
(2) Previously calculated pursuant to Rule 457(o) under the Securities Act of
1933. Includes shares of Common Stock subject to the Underwriters' over-
allotment option.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECAME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 29, 1997
[LOGO OF ARIS(SM)]
- --------------------------------------------------------------------------------
2,020,800 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 2,020,800 shares of Common Stock, without par value ("Common Stock"),
of ARIS Corporation ("ARIS" or the "Company") offered hereby (the
"Offering"), 2,000,000 shares are being offered by the Company and 20,800
shares are being offered by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any of the proceeds from the
sale of shares by the Selling Shareholders.
Prior to this Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for listing
on the Nasdaq National Market under the symbol "ARSC."
For information concerning certain risk factors which should be considered by
prospective investors, see "Risk Factors" commencing on page 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<TABLE>
<CAPTION>
PROCEEDS PROCEEDS
PRICE UNDERWRITING TO TO SELLING
TO PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this Offering of approximately $700,000
payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to an additional 300,000 shares of Common Stock to cover over-
allotments. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to the Company will be $ ,
$ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York, on or about ., 1997.
DEUTSCHE MORGAN GRENFELL
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
The date of this Prospectus is , 1997.
<PAGE>
[ARIS Logo]
The Company believes that its ability to provide clients with an integrated IT
solution, coupled with its focus on leading-edge technologies, provide it with
a unique competitive advantage.
[A graphic consisting of three concentric circles laid on top of one another.
The center circle lists three companies: Oracle, Microsoft and Sun
Microsystems. The second circle outlines ARIS' three operating divisions and
the outer circle outlines, by operating division, the general products and
services offered by each division.]
Except as otherwise noted, all information in this Prospectus, including
share and per share information, assumes no exercise of the Underwriters'
over-allotment option and gives effect to a two-for-one stock split of the
Company's outstanding Common Stock effected August 29, 1996.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
ARIS provides an integrated information technology ("IT") solution consisting
of consulting and training services primarily focused on Oracle Corporation
("Oracle") and Microsoft Corporation ("Microsoft") technologies. ARIS currently
focuses on three core consulting competencies: packaged application
implementation, custom application development and systems architecture
planning and deployment. The Company currently offers 118 instructor-led course
titles for IT professionals conducted at ARIS' training centers and at client
facilities. The Company also develops, markets and supports proprietary
software products that enhance Oracle database management and Oracle packaged
applications. The Company believes that its ability to provide clients with an
integrated IT solution, coupled with its focus on leading-edge technologies,
provide it with a unique competitive advantage. The Company's strategy is to
become a leading provider of integrated IT solutions by: (i) leveraging
synergies between consulting and training; (ii) focusing on leading-edge
technologies; (iii) attracting and retaining highly skilled employees;
(iv) maintaining high levels of client satisfaction; (v) expanding its
geographic presence; and (vi) pursuing strategic acquisitions.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.... 2,020,800 shares (including 2,000,000 shares by the
Company and 20,800 shares by the Selling Shareholders)
Common Stock outstanding 9,423,900 shares(1)
after this Offering....
Use of Proceeds......... To repay debt and for working capital and general
corporate purposes.
Proposed Nasdaq National ARSC
Market Symbol..........
</TABLE>
SUMMARY CONSOLIDATED AND PRO FORMA COMBINED FINANCIAL INFORMATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
--------------------------------------------------------------- -----------------------
MARCH 31, MARCH 31,
1992 1993 PRO FORMA 1996 1997
(UNAUDITED) (UNAUDITED) 1994 1995(2) 1996(3) 1996(4) (UNAUDITED) (UNAUDITED)
----------- ----------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Consulting revenue...... $2,091 $3,416 $6,132 $ 9,725 $16,312 $18,245 $2,543 $ 6,633
Training revenue........ 112 263 551 4,821 9,385 17,423 1,778 3,243
Software revenue........ -- 7 369 205 1,201 2,022 106 533
------ ------ ------ ------- ------- ------- ------ -------
Total revenue........... 2,203 3,686 7,052 14,751 26,898 37,690 4,427 10,409
Cost of consulting and
training.............. 1,214 2,086 3,637 7,176 13,353 17,558 2,177 4,901
Cost of software....... -- -- 47 42 93 527 4 48
------ ------ ------ ------- ------- ------- ------ -------
Gross profit........... 989 1,600 3,368 7,533 13,452 19,605 2,246 5,460
Selling, general and
administrative
expense............... 403 947 2,077 4,552 10,206 15,890 1,445 3,751
------ ------ ------ ------- ------- ------- ------ -------
Income from operations.. 586 653 1,291 2,981 3,246 3,715 801 1,709
====== ====== ====== ======= ======= ======= ====== =======
Net income.............. $ 397 $ 448 $ 826 $ 2,010 $ 2,014 $ 2,208 $ 506 $ 1,044
====== ====== ====== ======= ======= ======= ====== =======
Net income per share(5). $ 0.10 $ 0.10 $ 0.12 $ 0.24 $ 0.23 $ 0.26 $ 0.06 $ 0.12
====== ====== ====== ======= ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED(6)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments in marketable
securities............................................. $ 1,857 $23,197
Total assets............................................ 19,822 41,162
Total debt.............................................. 5,887 1,887
Shareholders' equity.................................... 6,615 31,955
</TABLE>
- -------
1 Excludes 1,203,025 shares of Common Stock issuable upon exercise of options
outstanding at May 26, 1997 under the Company's 1995 Stock Option Plan (the
"1995 Stock Option Plan") and the Company's 1997 Stock Option Plan (the "1997
Stock Option Plan") at a weighted average exercise price of $5.28 per share
and 4,000 shares of Common Stock issuable upon exercise of a warrant at an
exercise price of $10.00 per share. See "Management--Executive Compensation,"
"--Stock Option Plans," and Note 10 of Notes to Consolidated Financial
Statements.
2 Reflects the acquisition of Clarity, Inc. on January 1, 1995 in a transaction
accounted for as a purchase.
3 Reflects the acquisition of SQLSoft, Inc., SofTeach Corporation and Noetix
Corporation on May 1, 1996, October 1, 1996 and October 1, 1996,
respectively, in transactions accounted for as purchases.
4 Presents the consolidated results of operations of the Company as if SQLSoft,
Inc., SofTeach Corporation, Noetix Corporation and Oxford Computer Group
Limited had been acquired on January 1, 1996, including the impact of certain
adjustments. The Company completed the acquisition of Oxford Computer Group
Limited on February 28, 1997 in a transaction accounted for as a purchase.
5 See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in the per share
calculation.
6 Gives effect to the application of the estimated net proceeds of this
Offering to the Company. See "Use of Proceeds."
1
<PAGE>
THE COMPANY
ARIS provides an integrated IT solution consisting of consulting and
training services primarily focused on Oracle and Microsoft technologies. The
Company also develops, markets and supports proprietary software products that
enhance Oracle database management and Oracle packaged applications. The
Company believes that its ability to provide clients with an integrated IT
solution, coupled with its focus on leading-edge technologies, provide it with
a unique competitive advantage. The Company's strategy is to become a leading
provider of integrated IT solutions by: (i) leveraging synergies between
consulting and training; (ii) focusing on leading-edge technologies; (iii)
attracting and retaining highly skilled employees; (iv) maintaining high
levels of client satisfaction; (v) expanding its geographic presence; and (vi)
pursuing strategic acquisitions. ARIS may shift or expand its vendor focus
over time in order to maintain alignment with leading-edge, emerging
technologies.
ARIS CONSULTING. ARIS provides mission critical IT consulting services to
clients that require assistance planning, designing, developing, testing and
deploying Oracle and Microsoft technologies. ARIS currently focuses on three
core consulting competencies: packaged application implementation, custom
application development and systems architecture planning and deployment. ARIS
believes that its vendor focus, consulting methodologies and proprietary
software tools result in higher value-added services for its consulting
clients. As of March 31, 1997, ARIS employed 142 consultants and project
managers.
ARIS TRAINING. ARIS is a leading provider of training for IT professionals
in Microsoft BackOffice, Oracle, Sun Solaris and Java, Internet/intranet and
networking technologies. ARIS provides instructor-led training through
regularly scheduled open-enrollment classes, private classes (using both
standard and customized course content) and on-line training. During 1996,
ARIS offered 95 course titles and its instructors taught 989 classes. As of
March 31, 1997, the Company had 44 classrooms in nine training centers with a
total capacity of 479 students.
The Company has experienced significant growth, with revenue and operating
income increasing from $7.1 million and $1.3 million, respectively, in 1994,
to $26.9 million and $3.2 million, respectively, in 1996. Since 1995, the
Company has acquired three training companies, one software development
company, assumed the operations of one IT consulting business, and opened four
new offices. In addition, in February 1997, the Company acquired Oxford
Computer Group Limited ("Oxford"), an IT training and consulting company
located in the United Kingdom that specializes in Microsoft technologies. Pro
forma combined revenue and operating income for 1996, was $37.7 million and
$3.7 million, respectively, assuming the two training companies and one
software company acquired in 1996 and the acquisition of Oxford in 1997, had
been completed on January 1, 1996.
The Company currently operates eight consulting offices and nine training
centers in the United States and the United Kingdom. The Company's clients
include Fortune 1000 companies and governmental entities such as Boeing,
Microsoft, Hewlett-Packard, Lockheed Martin, Starbucks Coffee, TIG Holdings,
Quebecor, the British Broadcasting Company, National Westminster Group,
Tektronix, Nike, Weyerhaeuser and the U.S. Internal Revenue Service.
ARIS was incorporated in Washington in October 1990. The Company's
headquarters is located at 6720 Fort Dent Way, Suite 250, Seattle, Washington
98188-2555 and its telephone number at that address is (206) 433-2081.
2
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should carefully consider the following risk factors before making an
investment decision concerning the Common Stock. All statements, trend
analysis and other information contained in this Prospectus relative to
markets for the Company's services and products and trends in revenue, gross
margin and anticipated expense levels, as well as other statements including
words such as "seek," "anticipate," "believe," "plan," "estimate," "expect,"
"intend" and other similar expressions, constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks,
and the Company's actual results of operations may differ materially from
those contained in the forward-looking statements.
RECRUITMENT AND RETENTION OF IT PROFESSIONALS. The Company's future success
will depend in large part on its ability to attract, develop, motivate and
retain highly skilled IT professionals, particularly project managers,
consultants and instructors. Highly skilled IT professionals are in high
demand and are likely to remain a limited resource for the foreseeable future.
The Company competes for consultants and project managers with other
consulting firms, software vendors and consumers of IT consulting services.
The Company competes for instructors with other training service providers,
software and hardware vendors and the in-house IT training departments of
major corporations. There can be no assurance that the Company will be
successful in hiring and retaining a sufficient number of IT professionals to
staff its consulting projects and to meet demand for instructor-led classes.
See "Business--Personnel and Human Resources."
ABILITY TO MANAGE GROWTH AND INTEGRATE RECENT ACQUISITIONS. ARIS recently
has experienced rapid growth that has placed, and will continue to place,
significant demands on its management and other resources. Between January 1,
1996 and May 26, 1997, the Company's total employee headcount increased from
115 to 388, and the Company opened or acquired four new consulting offices and
six new training centers in the United States and the United Kingdom. The
Company expects to continue to hire additional personnel, open new offices and
make acquisitions. To manage its growth effectively, the Company must continue
to improve its operational, financial and other management processes and
systems, and to attract, develop, motivate and retain highly skilled IT
professionals. In addition, the Company's success depends largely on
management's ability to maintain high levels of employee utilization, project
and instructional quality and competitive pricing for its services. None of
the Company's senior management previously has managed a business of the
Company's size or has any experience managing a public company. No assurance
can be given that the Company will be successful in managing its growth.
Since 1995 the Company has pursued an aggressive growth strategy by
acquiring companies in complementary service, product and geographic markets.
In January 1995 the Company acquired an IT training company and, between May
1996 and October 1996, the Company acquired two IT training companies, one
software development company and assumed the operations of one IT consulting
business. In February 1997, the Company completed the acquisition of Oxford,
an IT training and consulting company located in the United Kingdom. Oxford is
the largest company acquired by ARIS to date and its first international
acquisition. There can be no assurance that the Company will be able to
integrate Oxford successfully into the ARIS organization. The failure to
integrate Oxford or any of the Company's other recent acquisitions
successfully into the Company or the inability to achieve anticipated revenue
and operating results during the integration process could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
3
<PAGE>
CUSTOMER CONCENTRATION. The Company has derived, and believes that it may
continue to derive, a significant portion of its revenue from a limited number
of large clients. One client, Tektronix, accounted for 9.1%, 21.8% and 20.0%
of the Company's total revenue in 1996, 1995 and 1994, respectively. There can
be no assurance that the volume of work performed for specific clients will be
sustained from year to year, or that a major client in one year will engage
the Company in a subsequent year. Any significant reduction in the scope of
work performed for the Company's principal clients or a number of smaller
clients, the failure of anticipated projects for current clients to
materialize, or deferrals, modifications or cancellations of ongoing projects
by current clients could have a material adverse effect on the Company's
business, financial condition and results of operations. From March 1993 to
March 1997, the Company qualified under Section 8(a) of the Small Business Act
(the "8(a) Program"). As an 8(a) Program participant, the Company was awarded
contracts with U.S. government agencies totaling approximately 9.0%, 13.7% and
3.7% of the Company's revenue in 1996, 1995 and 1994, respectively. In the
first quarter of 1997, the Company ceased to be eligible to participate in the
8(a) Program. Accordingly, the Company may be less successful bidding for
certain U.S. government contracts in areas where 8(a) Program qualification is
considered in the contract award process. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Clients."
DEPENDENCE ON KEY VENDORS OF SOFTWARE TECHNOLOGY. The Company relies on
formal and informal relationships with key providers of software technology,
in particular, Microsoft, Oracle, and Sun Microsystems, Inc. ("Sun"). During
1996, management estimates that approximately 84.8% of the Company's
consulting revenue was derived from projects in which ARIS implemented IT
solutions employing Oracle technologies. During the same period, management
estimates that training in Microsoft and Oracle technologies generated
approximately 66.6% and 14.6%, respectively, of the Company's revenue from
training services. The Company participates in a number of Microsoft, Oracle
and Sun programs that enable the Company to obtain early information about new
software products and courseware, and to benefit from the increased
credibility and enhanced reputation resulting from vendor accreditation.
Management believes that Oracle may develop an authorized third-party training
program. If Oracle creates an authorized third-party training program and ARIS
does not participate in the program, ARIS' training revenue and ability to
compete effectively in providing training in Oracle technologies could be
adversely impacted. Any significant changes to the vendor sponsored programs
in which the Company participates or any deterioration in the relationship
between the Company and a key vendor could result in the loss of vendor
certifications, a reduction in the number of client referrals or vendor
actions which might adversely affect the Company's ability to compete
successfully. See "Business--Relationships with Key Vendors."
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's operations and
related revenue and operating results historically have varied from quarter to
quarter, and the Company expects these variations to continue. Factors causing
such fluctuations have included and may include: the number, size and scope of
consulting projects; the contractual terms and degree of completion of such
projects; project delays; variations in utilization rates and average billing
rates for consultants and project managers due to vacations, holidays and the
integration of newly hired consultants; the inability of the Company to
conduct as many four- and five-day courses due to national holidays and
vacation schedules, particularly, in the fourth quarter; frequency of training
classes and demand for training following new software product releases;
variations in fill rates in training classes; integration of acquired
entities; and general economic conditions. Because a significant percentage of
the Company's expenses, particularly personnel costs and rent, are relatively
fixed in advance of any particular quarter, shortfalls in revenue caused by
these and other factors may cause significant variations in operating results
in any
4
<PAGE>
particular quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations."
PROJECT RISKS. Most of ARIS' consulting agreements permit the client to
terminate an engagement without cause and without significant penalty upon 14
or fewer days' notice to the Company. Clients may from time to time terminate
their agreements with the Company due to the Company's failure to meet
expectations or for other reasons. Additionally, contracts to perform services
for the U.S. government may be subject to renegotiation. The termination or
renegotiation of one or more engagements by the Company's clients could
adversely affect revenue and operating results, damage the Company's
reputation, and adversely affect its ability to attract new business.
Additionally, ARIS has undertaken and may in the future undertake fixed
price consulting projects. From time to time the Company may establish a price
or project schedule before the client's design specifications are completed.
The Company's failure to accurately estimate the resources required for such
projects or its failure to complete its contractual obligations in a manner
consistent with the project plan upon which the fixed price/fixed schedule
contract was based could have a material adverse effect on the profitability
of such projects.
GROWTH THROUGH ACQUISITIONS. ARIS intends to continue growing through
strategic acquisitions of businesses that the Company believes will complement
its operations. The success of ARIS' plan to grow through acquisitions depends
on, among other things, the Company's ability to (i) identify and acquire
businesses on terms that management considers attractive; (ii) integrate
acquired businesses into its organization; and (iii) retain the acquired
businesses' key personnel and principal clients. Any future acquisitions would
be accompanied by the risks commonly encountered in such transactions,
including difficulties associated with assimilating the personnel and
operations of the acquired business, the Company's inability to achieve
expected financial results or strategic goals for the acquired business, the
potential disruption of the Company's ongoing business, the diversion of
significant management and other resources and the maintenance of uniform
standards, controls, procedures and policies. There can be no assurance that
the Company will be able to identify future acquisition candidates or to
successfully overcome the risks and challenges encountered in completing and
integrating future acquisitions. The Company's failure or inability to
implement and manage its acquisition strategy could have a material adverse
effect on the Company's business, financial condition, and results of
operations. In addition, future acquisitions could require ARIS to issue
dilutive equity securities, incur debt or contingent liabilities and amortize
expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the market for and the price of the
Company's Common Stock.
RELIANCE ON KEY PERSONNEL. The Company's continuing success will depend in
large part on the continued services of a number of key employees including
Paul Y. Song, its founder, President, Chief Executive Officer and Chairman.
The loss of the services of Mr. Song, certain of the Company's senior
management or other key personnel could have a material adverse effect on the
Company. The Company has entered into employment agreements containing non-
competition, non-solicitation and non-disclosure clauses with all of its
management, consultants and project managers and instructors, except Mr. Song.
These contracts, however, do not guarantee that these individuals will
continue their employment with the Company. In addition, there is no guarantee
that the non-competition and non-solicitation provisions of these agreements
would be enforced by a court if the Company were required to seek to enforce
its rights thereunder. The loss of one or more of the Company's key employees
to a current or potential competitor could result in the loss of existing or
potential clients to such competitor adversely affecting revenues and
operating income. The Company currently maintains and is the beneficiary of a
"key man" life insurance policy in the amount of $2.0 million on the life of
5
<PAGE>
Mr. Song. See "Management--Directors, Executive Officers and Key Employees"
and "--Employment Agreements."
INTERNATIONAL OPERATIONS. As a result of the recent acquisition of Oxford, a
substantial portion of the Company's revenue is derived from its international
operations. Revenue from international operations for the first quarter of
1997, which was the first period in which the Company had material revenues
from international operations, was $821,000 representing 7.9% of total revenue
for the quarter. The Company faces certain risks inherent in conducting
business internationally, such as unexpected changes in regulatory
requirements, difficulties in staffing and managing foreign operations,
differing employment laws and practices in foreign countries, longer payment
cycles, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world, and potentially adverse tax
consequences. Any of these factors could adversely affect the success of the
Company's international operations. There can be no assurance that such
factors will not have a material adverse effect on the Company's international
operations and, consequently, on the Company's consolidated financial
condition and results of operations. The Company may also face risks from
foreign currency fluctuations. To date the Company has not entered into any
forward exchange contracts or other hedging activities in anticipation of
foreign currency fluctuations, but it may do so in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION. The IT consulting industry and the IT training industry are
generally regarded as separate industries, each of which is rapidly growing
and highly competitive. Within each industry there are a large number of
competitors, many of whom have significantly greater financial, technical,
marketing and human resources and greater name recognition than the Company.
ARIS' principal competitors in the delivery of consulting services are the
consulting divisions of the large international accounting firms, the
consulting divisions of software vendors such as Oracle, and numerous
international, national and regional IT consulting firms. The Company faces
competition in the delivery of IT training services from the in-house IT
departments of its prospective clients, companies such as International
Business Machines and Hewlett-Packard, software vendors, other Microsoft
Authorized Technical Education Centers ("ATECs"), and independent
international, national and regional training companies. The Company's
software product, ARIS DFRAG, competes with system management tools
distributed by BMC Software, Platinum Technology and Compuware. Although the
Company believes few commercially available software products currently
compete directly with the Company's other software product, NoetixViews, there
can be no assurance that new competitive products will not be developed by
Oracle, third party software vendors or by in-house IT departments of the
Company's current or potential clients. There can be no assurance that any
future products will not achieve greater market acceptance than the Company's
software products. Failure by ARIS to compete successfully in the consulting
or training market would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Competition."
RAPID TECHNOLOGICAL CHANGE. The Company's success also depends in part on
its ability to develop IT solutions that keep pace with continuing changes in
technology, evolving industry standards and changing client preferences. This
may require the Company to make substantial expenditures to develop new
consulting services, course titles and courseware, to hire new consultants,
project managers and instructors and to acquire new software and hardware. If
the Company is unable, for financial or other reasons, to make those
expenditures, hire additional qualified personnel, or make the necessary
acquisitions, the Company's ability to compete effectively may be materially
and adversely affected.
6
<PAGE>
INTELLECTUAL PROPERTY RIGHTS. The Company uses certain proprietary
consulting and training methodologies, courseware, software applications and
products, trademarks and service marks and other proprietary and intellectual
property rights. The Company relies upon a combination of copyright, trademark
and trade secret laws, as well as nondisclosure and other contractual
arrangements, to protect these proprietary rights. The Company uses client
licensing agreements and employee and third-party nondisclosure and
confidentiality agreements to limit access to and distribution of its
proprietary information. There can be no assurance that the steps taken by the
Company to protect its intellectual property rights will be adequate to deter
misappropriation of such rights or that the Company will be able to detect
unauthorized uses and take immediate or effective steps to enforce its rights.
If substantial unauthorized uses of the Company's proprietary rights were to
occur, the Company could be required to engage in costly and time-consuming
litigation to enforce its rights. In addition, the Company does business in
countries that do not provide protection or enforcement of intellectual
property rights to the same extent as the United States, and on the Internet,
which is not currently subject to comprehensive regulation.
The Company develops custom software applications and methodologies, and
training courses, methodologies and courseware for third party software
products. The training courses, methodologies and courseware are owned by the
Company through agreements with employees and subcontractors, but ownership of
software applications developed for clients is often assigned to the client,
with the Company retaining limited use licenses. The Company also develops
software application tools in the course of its consulting projects. The
Company generally seeks to retain significant ownership or marketing rights
for adaptation and reuse in subsequent projects. Issues relating to the
ownership of and rights to use training courses, methodologies, courseware,
software applications and other tools can be complicated and there can be no
assurance that disputes will not arise that affect the Company's ability to
resell or reuse such products and methodologies.
There can be no assurance that the Company's competitors will not
independently develop products or methodologies functionally similar to the
Company's products and methodologies, or that third parties will not claim
that the Company's current or future products, courseware or services infringe
their proprietary rights. Although the Company believes that its products,
courseware and services do not infringe on any third-party intellectual
property rights, there can be no assurance that such a claim will not be
asserted against the Company in the future or that, if asserted, any such
claim will be defended successfully. See "Business--Intellectual Property."
CONTROL BY PRINCIPAL SHAREHOLDERS. Paul Y. Song, the Company's founder,
President, Chief Executive Officer and Chairman, is the Company's single
largest shareholder. Mr. Song's wife, Tina J. Song, is the Director of Human
Resources and Information Technology for the Company and is the Company's
third largest shareholder. A family limited partnership controlled by Mr. and
Mrs. Song is the Company's second largest shareholder. Upon the completion of
this Offering, Mr. and Mrs. Song will beneficially own approximately 47.4% of
the Company's outstanding shares of Common Stock. As a result, Mr. and Mrs.
Song will be able to control the affairs and management of the Company and the
outcome of any matters requiring a shareholder vote (other than those matters
for which a supermajority vote is required under Washington law or the
Company's Amended and Restated Bylaws (the "Restated Bylaws")), including the
election of the members of the Board of Directors. Such control could delay or
prevent a change in control of the Company. Other members of Mr. Song's
immediate family, including his brother, John Y. Song, Vice President of
Eastern Operations, own an aggregate of 220,000 shares of Common Stock and
options to purchase an additional 60,800 shares of Common Stock. See
"Management" and "Principal and Selling Shareholders."
7
<PAGE>
POTENTIAL LIABILITY TO CLIENTS. Many of the Company's engagements involve
projects that are critical to the operations of its clients' businesses and
provide benefits that may be difficult to quantify. Any failure in a client's
information system could result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure. Although
the Company generally attempts to limit contractually its liability for
damages arising from negligent acts, errors, mistakes or omissions in
rendering its services, there can be no assurance that the limitations of
liability set forth in its service contracts will be enforceable or would
otherwise protect the Company from liability for damages. The Company
maintains general liability insurance coverage, including coverage for errors
and omissions, against claims of up to $2.0 million in the aggregate. There
can be no assurance, however, that such coverage will continue to be available
on commercially reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the Company's insurer will not
disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could
adversely affect the Company's business, financial condition and results of
operations.
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this
Offering there has been no public market for the Company's Common Stock. There
can be no assurance that an active public market for the Common Stock will
develop or be sustained after the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiation between the
Company and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Moreover, the market for securities of early stage, small
market capitalization companies is volatile, often as a result of factors
unrelated to an issuer's operations. In addition, the Company believes factors
such as quarterly variations in operating results, changes in relationships
between the Company and certain key vendors of software products, general
conditions in the IT industry or the industries in which the Company's clients
compete and changes in earnings estimates by securities analysts could
contribute to the volatility of the price of the Company's Common Stock and
cause significant price fluctuations. These factors, as well as general
economic conditions, could adversely affect the market price of the Common
Stock. Furthermore, securities class action litigation is not uncommon against
issuers, particularly following periods of volatility in the market price of
an issuer's securities. There can be no assurance that such litigation will
not occur in the future with respect to the Company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Any adverse
determination in such litigation could subject the Company to significant
liabilities.
ANTI-TAKEOVER PROVISIONS. The Company is subject to the anti-takeover
provisions of Chapter 23B.17 of the Washington Business Corporation Act (the
"WBCA") which prohibits, subject to certain exceptions, a merger, sale of
assets or liquidation of a corporation involving a 20% shareholder unless
determined to be at a fair price or approved by disinterested directors or
disinterested shareholders. In addition, Chapter 23B.19 of the WBCA prohibits
a corporation registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") from engaging in certain significant transactions with a
10% shareholder. Significant transactions include, among others, a merger with
or disposition of assets to the 10% shareholder. Further, the Company's
Amended and Restated Articles of Incorporation (the "Restated Articles")
provide for a classified Board of Directors with staggered, three-year terms.
Also, the Board has the authority to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the preferences and other rights
thereof without any further vote or action by the Company's
8
<PAGE>
shareholders. The issuance of preferred stock, together with the effect of
other anti-takeover provisions in the Restated Articles and under the WBCA, may
have the effect of delaying, deferring or preventing a change in control of the
Company and could limit the price that certain investors might be willing to
pay in the future for the Common Stock. See "Description of Capital Stock--
Preferred Stock," "Description of Capital Stock--Washington Anti-Takeover
Statute" and "Description of Capital Stock--Certain Provisions in Restated
Articles and Restated Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of the
Company's Common Stock in the public market after this Offering could adversely
affect prevailing market prices for the Common Stock. Taking into account
restrictions imposed by the Securities Act of 1933, as amended (the "Securities
Act"), rules promulgated by the Securities and Exchange Commission (the
"Commission") thereunder and lock-up agreements between certain shareholders
and Deutsche Morgan Grenfell Inc. (the "Lock-up Agreements"), the number of
additional shares that will be available for sale in the public market, subject
in some cases to the volume and other restrictions of Rule 144 under the
Securities Act, will be as follows: 6,528,160 shares of Common Stock will be
eligible for sale beginning 180 days after the closing of this Offering, and
855,020 shares will be eligible for sale pursuant to Rule 144 upon the
expiration of applicable holding periods, which will expire between November 1,
1997 and March 10, 1999. Deutsche Morgan Grenfell Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such Lock-up Agreements. Upon the closing of this Offering,
holders of 301,200 shares of Common Stock are entitled to certain rights with
respect to the registration of such shares under the Securities Act. In
addition, the Company intends to file a registration statement on Form S-8
under the Securities Act approximately 180 days after the closing of this
Offering to register approximately 1,978,000 shares of Common Stock reserved
for issuance under the Company's stock option plans. In addition, up to 4,000
shares of Common Stock issuable upon exercise of an outstanding warrant will
become available for sale in the public market following the expiration of the
Rule 144 holding period on February 24, 1998, if exercised pursuant to cashless
exercise provisions, or one year following the exercise of the warrant for
cash. See "Description of Capital Stock--Registration Rights" and "Shares
Eligible for Future Sale."
DISCRETION AS TO THE USE OF PROCEEDS. The Company has not yet identified
specific uses for a significant portion of the net proceeds from this Offering.
The Company's management will retain broad discretion to allocate net proceeds.
Purchasers of the shares of Common Stock offered hereby will be entrusting
their funds to the Company's management, upon whose judgment they must depend,
with limited information concerning the specific working capital requirements
and general corporate purposes to which the funds ultimately will be applied.
See "Use of Proceeds."
DILUTION; ABSENCE OF DIVIDENDS. The initial public offering price will be
substantially higher than the net tangible book value per share of Common
Stock. Investors participating in this Offering will therefore incur immediate,
substantial dilution of $11.12 per share. To the extent outstanding options or
warrants to purchase the Company's Common Stock are exercised, there will be
further dilution. See "Dilution." The Company has not paid any cash dividends
since 1993 and does not anticipate declaring or paying any cash dividends in
the foreseeable future. See "Dividend Policy."
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS. This Offering will benefit
all current shareholders of the Company, including its directors and executive
officers and the Selling Shareholders, by, among other things, creating a
public market for the Company's Common Stock, thereby increasing liquidity and
potentially increasing the market value of such shareholders' investment in the
Company. Assuming an initial public offering price of $14.00
9
<PAGE>
per share, after deducting underwriting discounts and commissions, the
aggregate realized gain to the Selling Shareholders as a result of this
Offering will be approximately $167,000. Following the Offering the current
shareholders of the Company will own shares having an aggregate unrealized
gain of approximately $106.7 million. See "Dilution" and "Principal and
Selling Shareholders."
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered by the Company are estimated to be $25,340,000 ($29,246,000 if
the over-allotment option is exercised in full), assuming an initial public
offering price of $14.00 per share and after deducting estimated underwriting
discounts and other offering expenses payable by the Company. The Company will
not receive any of the proceeds from the sale of the shares of Common Stock
offered by the Selling Shareholders.
The Company intends to use approximately $4.0 million of the net proceeds
from this Offering to repay a term loan from U.S. Bank of Washington, N.A.
("U.S. Bank"), which the Company incurred primarily to fund its repurchase of
415,000 shares of the Company's Common Stock from certain shareholders at
$8.50 and $9.75 per share in February and March of 1997. See "Certain
Transactions." The term loan bears interest at a variable rate, currently
8.25%, and is due and payable within ten days of the closing of this Offering.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources." The Company intends to use
the remaining net proceeds for working capital, expansion of the Company's
business and for general corporate purposes. A portion of the net proceeds
also may be used to acquire or invest in complementary businesses. Although
the Company frequently evaluates potential acquisitions of complementary
businesses, there are no present understandings, commitments or agreements
with respect to the acquisition of any other businesses. See "Business--
Strategy."
To the extent that the net proceeds of this Offering are not used
immediately, they will be invested in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
The Company has not paid any cash dividends since 1993. The Company
currently expects to retain all future earnings to finance the operation and
expansion of its business and does not anticipate declaring or paying any cash
dividends in the foreseeable future.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997, (i) on an actual basis; and (ii) as adjusted to reflect the sale of
2,000,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $14.00 per share and the application of the
estimated net proceeds therefrom. The information set forth below should be
read in conjunction with the audited consolidated financial statements of the
Company and Notes thereto (the "Consolidated Financial Statements") and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
-------------------
<S> <C> <C>
Notes payable.......................................... $ 1,887 $ 1,887
Term loan.............................................. 4,000 --
------- -------
5,887 1,887
------- -------
Shareholders' equity:
Common Stock, no par value; 100,000,000 shares
authorized; 7,423,900; and 9,423,900 shares issued
and outstanding, respectively(1)..................... 3,224 28,564
Retained earnings..................................... 3,180 3,180
Net unrealized holding gain on investments............ 209 209
Cumulative foreign currency translation adjustment.... 2 2
------- -------
Total shareholders' equity......................... 6,615 31,955
------- -------
Total capitalization................................. $12,502 $33,842
======= =======
</TABLE>
- --------
(1) Excludes 1,203,025 shares of Common Stock issuable upon exercise of
options outstanding at May 26, 1997 under the 1995 Stock Option Plan and
the 1997 Stock Option Plan at a weighted average exercise price of $5.28
per share and 4,000 shares of Common Stock issuable upon exercise of a
warrant at an exercise price of $10.00 per share. See "Management--
Executive Compensation," "--Stock Option Plans," and Note 10 of Notes to
Consolidated Financial Statements.
11
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1997 was
$1,787,000, or $0.24 per share of Common Stock. After giving effect to the
sale by the Company of 2,000,000 shares offered hereby (at the assumed initial
public offering price of $14.00 per share and after deducting the estimated
underwriting discount and offering expenses), the adjusted net tangible book
value of the Company as of March 31, 1997 would have been approximately
27,127,000, or $2.88 per share. This represents an immediate increase in such
net tangible book value of $2.64 per share to existing shareholders and an
immediate dilution of $11.12 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Net tangible book value per share before the Offering....... $0.24
Increase per share attributable to new investors............ $2.64
Net tangible book value per share after the Offering.......... $ 2.88
------
Net tangible book value dilution per share to new investors... $11.12
======
</TABLE>
The following table summarizes the difference between the total
consideration and average price per share paid by the existing shareholders
and that paid by new investors purchasing shares in this Offering at the
assumed initial public offering price of $14.00.
<TABLE>
<CAPTION>
AVERAGE
SHARES TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 5,393,000 72.9% $ 79,000 0.3% $ 0.02
New investors..................... 2,000,000 27.1 28,000,000 99.7 $14.00
--------- ----- ----------- -----
Total........................... 7,393,000 100.0% $28,079,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table excludes 1,203,025 shares of Common Stock issuable upon
exercise of options outstanding at May 26, 1997 under the 1995 Stock Option
Plan and the 1997 Stock Option Plan at a weighted average exercise price of
$5.28 per share and 4,000 shares of Common Stock issuable upon exercise of a
warrant at an exercise price of $10.00 per share. See "Management--Executive
Compensation," "--Stock Option Plans," and Note 10 of Notes to Consolidated
Financial Statements.
12
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA
COMBINED FINANCIAL DATA
The consolidated statement of operations data for the three year period
ended December 31, 1996 and the consolidated balance sheet data as of December
31, 1995 and 1996 are derived from the Consolidated Financial Statements of
the Company that have been audited by Price Waterhouse LLP, independent
accountants, which are included elsewhere in this Prospectus. The balance
sheet data as of December 31, 1994 are derived from financial statements of
the Company which are not included in this Prospectus but which were audited
by Price Waterhouse LLP. The statement of operations data for the two year
period ended December 31, 1993 and the quarters ended March 31, 1996 and March
31, 1997 and the balance sheet data as of December 31, 1992 and 1993 and March
31, 1997 are derived from unaudited financial statements of the Company which,
in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of
the results of operations for these periods. The pro forma combined statement
of operations data for the year ended December 31, 1996 has been derived from
the unaudited pro forma combined statement of income of the Company, which
presents the results of operations of the Company as if SQLSoft Inc.
("SQLSoft"), SofTeach Corporation ("SofTeach"), Noetix Corporation ("Noetix")
and Oxford had been acquired on January 1, 1996, (the "Pro Forma Combined
Financial Information"), which are included elsewhere in this Prospectus. The
following selected consolidated financial data should be read in conjunction
with, and are qualified in their entirety by reference to, the Consolidated
Financial Statements, the Pro Forma Combined Financial Information and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The historical results
should not be construed to be indicative of future results of operations and
the pro forma information should not be construed to be indicative of actual
or future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
-------------------------------------------------------- -----------------------
MARCH 31, MARCH 31,
1992 1993 PRO FORMA 1996 1997
(UNAUDITED) (UNAUDITED) 1994 1995(1) 1996(2) 1996(3) (UNAUDITED) (UNAUDITED)
----------- ----------- ------ ------- ------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Consulting............. $2,091 $3,416 $6,132 $ 9,725 $16,312 $18,245 $2,543 $ 6,633
Training............... 112 263 551 4,821 9,385 17,423 1,778 3,243
Software............... -- 7 369 205 1,201 2,022 106 533
------ ------ ------ ------- ------- ------- ------ -------
Total revenue.......... 2,203 3,686 7,052 14,751 26,898 37,690 4,427 10,409
------ ------ ------ ------- ------- ------- ------ -------
Cost of sales:
Consulting and
training.............. 1,214 2,086 3,637 7,176 13,353 17,558 2,177 4,901
Software............... -- -- 47 42 93 527 4 48
------ ------ ------ ------- ------- ------- ------ -------
Total cost of sales.... 1,214 2,086 3,684 7,218 13,446 18,085 2,181 4,949
------ ------ ------ ------- ------- ------- ------ -------
Gross profit........... 989 1,600 3,368 7,533 13,452 19,605 2,246 5,460
Operating expenses:
Selling, general and
administrative........ 403 947 2,077 4,552 10,206 15,890 1,445 3,751
------ ------ ------ ------- ------- ------- ------ -------
Income from operations.. 586 653 1,291 2,981 3,246 3,715 801 1,709
Other income (expense),
net................... 16 35 11 115 115 64 2 (42)
------ ------ ------ ------- ------- ------- ------ -------
Income before income
tax.................... 602 688 1,302 3,096 3,361 3,779 803 1,667
Income tax expense..... 205 240 476 1,086 1,347 1,571 297 623
------ ------ ------ ------- ------- ------- ------ -------
Net income.............. $ 397 $ 448 $ 826 $ 2,010 $ 2,014 $ 2,208 $ 506 $ 1,044
====== ====== ====== ======= ======= ======= ====== =======
Net income per share(4). $ 0.10 $ 0.10 $ 0.12 $ 0.24 $ 0.23 $ 0.26 $ 0.06 $ 0.12
====== ====== ====== ======= ======= ======= ====== =======
Weighted average number
of common and common
equivalent shares
outstanding(5)......... 3,813 4,286 6,676 8,487 8,582 8,582 8,574 8,513
====== ====== ====== ======= ======= ======= ====== =======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- MARCH 31,
1992 1993 1997
(UNAUDITED) (UNAUDITED) 1994 1995(1) 1996(2) (UNAUDITED)
----------- ----------- ------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and investments in
marketable securities.. $ 174 $ 78 $ 274 $2,491 $ 1,573 $ 1,857
Total assets............ 1,060 1,607 3,320 6,843 12,956 19,822
Total debt.............. -- -- -- -- 1,500 5,887
Shareholders' equity.... 757 1,203 2,113 4,642 8,210 6,615
</TABLE>
- --------
(1) The Company acquired Clarity on January 1, 1995 in a transaction accounted
for as a purchase.
(2) The Company acquired SQLSoft, SofTeach and Noetix on May 1, 1996, October
1, 1996 and October 1, 1996, respectively, in transactions accounted for
as purchases.
(3) Presents the consolidated results of operations of the Company as if
SQLSoft, SofTeach, Noetix and Oxford had been acquired on January 1, 1996,
including the impact of certain adjustments. The Company completed the
acquisition of Oxford on February 28, 1997 in a transaction accounted for
as a purchase.
(4) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
the per share calculation.
(5) Excludes 1,203,025 shares of Common Stock issuable upon exercise of
options outstanding at May 26, 1997 under the 1995 Stock Option Plan and
the 1997 Stock Option Plan at a weighted average exercise price of $5.28
per share and 4,000 shares of Common Stock issuable upon exercise of a
warrant at an exercise price of $10.00 per share. See "Management--
Executive Compensation," "--Stock Option Plans," and Note 10 of Notes to
Consolidated Financial Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ARIS began operations in 1990 as an IT consulting company specializing in
custom software application development for Oracle technologies. In 1993, ARIS
expanded its consulting activities from custom application development to
include packaged application implementation and introduced its first software
product, ARIS DFRAG. In response to client requests for training, the Company
began providing training services in Oracle technologies in 1991, and became a
Microsoft ATEC in 1994. In 1996 the Company became a Sun Educational Services
U.S. Strategic Partner for Seattle, Washington and Portland, Oregon.
The Company's revenue is derived from its consulting and training services
and sales and maintenance of its software products. Consulting revenue is
derived primarily from professional fees billed to clients. Revenue from
contracts that are billed on a time and materials basis is recognized as
services are performed. Revenue from fixed price contracts is recognized on
the percentage of completion method, based on the ratio of costs incurred to
the total estimated project costs. The Company bills its clients on a monthly
or semi-monthly basis. Where revenue is recognized before an invoice is sent,
the revenue in excess of billings is recorded as work in progress.
Occasionally, the Company is requested to provide hardware and software in
conjunction with its consulting projects. In such cases, the Company
recognizes as revenue only the difference between its cost and the resale
price for the software and hardware.
Training revenue is derived primarily from fees charged to corporate clients
for employee training provided at client facilities or at ARIS' training
centers and from fees charged to individual students for open enrollment
classes. In its open enrollment classes, the Company seeks to fill each
available seat in each scheduled class. The Company continuously monitors this
fill rate and may cancel or reschedule classes that are underenrolled. Revenue
for a training class is recognized in the month in which the last day of the
training event falls. Since a large number of training events are five-day
classes that end on a Friday, the number of Fridays in a given month impacts
the training revenue for that month.
Software revenue is derived from the sale of ARIS' products, ARIS DFRAG and
NoetixViews, and from support contracts with clients who purchase the software
products. Revenue is recognized when the software product has been shipped,
collectibility is probable and there are no significant obligations of the
Company remaining to be performed. Software support is billed at the beginning
of the contract period and is recognized ratably through the term of the
contract.
From March 1993 to March 1997, the Company qualified under the 8(a) Program.
As an 8(a) Program participant, the Company was awarded contracts with U.S.
government agencies totaling 9.0%, 13.7% and 3.7% of the Company's revenue in
1996, 1995 and 1994, respectively. In the first quarter of 1997, the Company
ceased to be eligible to participate in the 8(a) Program. Accordingly, the
Company may be less successful bidding for certain U.S. government contracts
in areas where 8(a) Program qualification is considered in the contract award
process.
RECENT ACQUISITIONS
In addition to its internal growth, the Company has grown through strategic
acquisitions of complementary businesses. Since January 1995, the Company has
made the following acquisitions:
15
<PAGE>
CLARITY, INC. In January 1995, the Company acquired the stock of Clarity, an
IT training company based in Bellevue, Washington, for $117,000 in cash and
1.4 million shares of ARIS Common Stock having a value of $263,000. Clarity
had revenue of $2.3 million in 1994.
SQLSOFT, INC. In May 1996, the Company acquired the stock of SQLSoft, a
Microsoft ATEC based in Bellevue, Washington for 707,900 shares of ARIS Common
Stock having a value of $1.3 million. SQLSoft had revenue of $2.6 million in
1995.
SOFTEACH CORPORATION. In October 1996, the Company purchased assets and
assumed liabilities of SofTeach, a Microsoft ATEC located in Denver, Colorado,
for a cash payment of $750,000, a $500,000 promissory note and 42,000 shares
of ARIS Common Stock having a value of $152,000. The Company combined the
operations of SofTeach with its existing operations in Denver. SofTeach had
revenue of $1.5 million for the first nine months of 1996 and $2.1 million in
1995.
NOETIX CORPORATION. The Company acquired the stock of Noetix in October 1996
in exchange for a cash payment of $835,000 and 40,000 shares of ARIS Common
Stock having a value of $145,000. Noetix develops, distributes and supports a
software product, NoetixViews, which enhances an end-user's ability to access
and manage information from Oracle's database products. Noetix had revenue of
$821,000 for the first nine months of 1996 and $413,000 in 1995.
OXFORD COMPUTER GROUP LIMITED. In February 1997, the Company acquired the
stock of Oxford in exchange for 280,000 shares of ARIS Common Stock having a
value of $1.4 million. Oxford is a Microsoft ATEC with facilities in Oxford,
London and Birmingham in the United Kingdom which also provides IT consulting
services primarily on Microsoft technologies. In calendar year 1996, Oxford
had revenue of (Pounds)4.7 million.
Each of these transactions was accounted for as a purchase. Capitalized
software development costs, non-compete agreements and goodwill resulting from
these acquisitions have been amortized over approximately three years, two
years and fifteen years, respectively.
In August 1996 the Company assumed the operations of Cray Solutions, a
division of Cray Research, Inc., a subsidiary of Silicon Graphics, Inc. In
connection with this transaction, the Company added 14 consultants and two
administrative staff providing IT consulting services in Dallas, Texas.
16
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total consolidated revenue (except as noted):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, QUARTER ENDED
------------------- -----------------------
MARCH 31, MARCH 31,
1996 1997
1994 1995 1996 (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA: ----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Consulting...................... 87.0% 65.9% 60.6% 57.4% 63.7%
Training........................ 7.8 32.7 34.9 40.2 31.2
Software........................ 5.2 1.4 4.5 2.4 5.1
----- ----- ----- ----- -----
Total revenue................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of sales:
Consulting and training......... 51.5 48.6 49.7 49.2 47.1
Software........................ 0.7 0.3 0.3 0.1 0.5
----- ----- ----- ----- -----
Total cost of sales........... 52.2 48.9 50.0 49.3 47.6
----- ----- ----- ----- -----
Gross margin.................. 47.8 51.1 50.0 50.7 52.4
Operating expenses:
Selling, general and
administrative................. 29.5 30.9 37.9 32.6 36.0
----- ----- ----- ----- -----
Income from operations............ 18.3 20.2 12.1 18.1 16.4
Other income (expense).......... 0.2 0.8 0.4 0.0 (0.4)
----- ----- ----- ----- -----
Income before income tax.......... 18.5 21.0 12.5 18.1 16.0
Income tax expense.............. 6.7 7.4 5.0 6.7 6.0
----- ----- ----- ----- -----
Net income........................ 11.8% 13.6% 7.5% 11.4% 10.0%
===== ===== ===== ===== =====
- --------
Cost of sales:
Consulting and training(1)...... 54.4% 49.3% 52.0% 50.4% 49.6%
Software(2)..................... 12.7% 20.5% 7.7% 3.8% 9.0%
</TABLE>
- --------
(1) Expressed as a percentage of combined consulting and training revenue.
(2) Expressed as a percentage of software revenue.
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
Revenue in the first quarter of 1997 ("Q1 1997") was $10.4 million,
representing a 135.1% increase over revenue of $4.4 million in the first
quarter of 1996 ("Q1 1996"), a result of increased revenue in each of the
Company's business lines.
Consulting revenue in Q1 1997 was $6.6 million, representing a 160.8%
increase over consulting revenue of $2.5 million in Q1 1996. This increase is
primarily attributable to an increase in the number of billable consultants
and project managers from 58 at the end of Q1 1996 to 142 at the end of Q1
1997, and an 11.8% increase in average billing rates. The Company opened new
offices in the Washington, D.C. area in January 1996, Dallas, Texas in August
1996 and Tampa, Florida in September 1996 and acquired Oxford on February 28,
1997, which together contributed $2.1 million in consulting revenue in Q1
1997.
Training revenue was $3.2 million in Q1 1997, representing an 82.4% increase
over training revenue of $1.8 million in Q1 1996. This increase is
attributable to the acquisition of SQLSoft in May 1996, SofTeach in October
1996 and Oxford on February 28, 1997 and an increase in the number of classes
held from 183 in Q1 1996 to 286 in Q1 1997. The Company's training revenue
increased $639,000 in Q1 1997 as a result of new offices opened.
17
<PAGE>
Software revenue in Q1 1997 was $533,000 as compared with software revenue
of $106,000 in Q1 1996. This increase is principally the result of the
acquisition of Noetix in October 1996, which added approximately $388,000 in
revenue in Q1 1997.
Cost of consulting and training consists primarily of salaries and employee
benefits for consultants, project managers and instructors, subcontractor
fees, and non-reimbursable travel expenses related to consulting and training
activities. Cost of consulting and training was $4.9 million in Q1 1997,
representing a 125.1% increase over $2.2 million in Q1 1996. This increase is
primarily attributable to an increase in the number of consultants, project
managers and instructors from 74 at the end of Q1 1996 to 209 at the end of Q1
1997.
Cost of software consists of amortization of capitalized software costs
related to completed products acquired in the acquisition of Noetix in October
1996, software development costs expensed prior to determination of market
feasibility and costs and manufacturing expenses associated with the
production and packaging of software products. Cost of software increased to
$48,000 in Q1 1997 from $4,000 in Q1 1996.
Selling, general and administrative expense ("SG&A expense") consists of
salaries and employee benefits for executive, managerial, administrative and
sales personnel, facility leases, amortization of capitalized computer
hardware and equipment costs, software license fees and travel and business
development costs. SG&A expense was $3.8 million in Q1 1997, representing a
159.6% increase over $1.4 million in Q1 1996. This increase is attributable
primarily to the growth in the number of management, sales and administrative
staff from 55 at the end of Q1 1996 to 158 at the end of Q1 1997. SG&A expense
as a percentage of total revenue increased from 32.6% in Q1 1996 to 36.0% in
Q1 1997. This increase reflects the inclusion of Oxford in the Company's
results of operations for the month of March. Oxford generally experiences
higher SG&A expenses as a percentage of revenue than does the Company's U.S.
operations.
Other income (expense) consists primarily of interest expense associated
with short term borrowings and interest income on cash and cash equivalents.
In Q1 1997 the Company had $54,000 in interest expense related primarily to a
term loan with U.S. Bank entered into in connection with the repurchase of
shares of Common Stock from certain shareholders of the Company. See "--
Liquidity and Capital Resources."
1996 COMPARED TO 1995
Revenue in 1996 was $26.9 million, representing an 82.3% increase over
revenue of $14.8 million in 1995, a result of increased revenue in each of the
Company's business lines. During 1996, the Company's single largest client
accounted for 9.1% of revenue, down from 21.8% in 1995. The Company's five
largest clients in 1996 accounted for 35.0% of revenue as compared to 52.9% of
revenue in 1995. See "Risk Factors--Customer Concentration" and "Business--
Clients."
Consulting revenue in 1996 was $16.3 million, representing a 67.7% increase
over consulting revenue of $9.7 million in 1995. This increase is primarily
attributable to an increase in the number of billable consultants and project
managers from 52 at the end of 1995 to 118 at the end of 1996, an approximate
10% increase in average billing rates, an increase in the number and size of
consulting projects and, to a lesser extent, the geographic expansion of the
Company's consulting services from the Seattle, Washington and Portland,
Oregon areas to include metropolitan Washington, D.C., Tampa, Florida, Dallas,
Texas and Denver, Colorado.
18
<PAGE>
Training revenue in 1996 was $9.4 million, representing a 94.7% increase
over training revenue of $4.8 million in 1995. This increase is attributable
to a number of factors, including (i) the acquisition of SQLSoft in May 1996
and SofTeach in October 1996, which management estimates added approximately
$1.8 million and $378,000 in training revenue in 1996, respectively; (ii) high
demand for certain new course offerings, including training in Microsoft
Windows NT 3.51 and Microsoft Internet and messaging products; (iii) the
Company's designation as a Sun Educational Services U.S. Strategic Partner for
the Seattle, Washington and Portland, Oregon areas; and (iv) an increase in
the number of public classes held from 194 in 1995 to 299 in 1996.
Software revenue in 1996 was $1.2 million as compared with revenue of
$205,000 in 1995. This increase is principally the result of an increase in
the sales of ARIS DFRAG following the hiring of a senior sales manager for
software products in late 1995 and the release of ARIS DFRAG 4.0 in January
1996. In addition, the acquisition of Noetix in October 1996 added
approximately $474,000 in revenue in the fourth quarter of 1996.
Cost of consulting and training was $13.4 million in 1996, representing an
86.1% increase over $7.2 million in 1995. This increase is primarily
attributable to an increase in the number of consultants, project managers and
instructors from 69 at the end of 1995 to 149 at the end of 1996. Cost of
consulting and training as a percentage of combined consulting and training
revenue increased from 49.3% in 1995 to 52.0% in 1996. This increase is
primarily attributable to lower utilization of consultants in 1996 resulting
from a large number of newly hired consultants that were not billing
immediately upon being hired. The lower utilization was partially offset by a
10% increase in average billing rates. In addition, the Company had higher
than usual subcontractor costs in the second half of 1996 primarily as a
result of the assumption of the operations of Cray which used a higher
percentage of subcontractors than the Company. Extensive use of subcontractors
will generally adversely impact the Company's gross margins. As a result, the
Company seeks to keep its use of subcontractors to a minimum.
Cost of software increased to $93,000 in 1996 from $42,000 in 1995. This
increase coincides with the rise in sales of software licenses revenue and is
primarily attributable to the costs of packaging and distribution of ARIS
DFRAG 4.0 and NoetixViews.
SG&A expense was $10.2 million in 1996, representing a 124.2% increase over
SG&A expense of $4.6 million in 1995. SG&A expense as a percentage of total
revenue increased from 30.9% in 1995 to 37.9% in 1996. This increase is due to
non-recurring expenses associated with the acquisition and integration of
SQLSoft, Noetix and SofTeach, higher expenses due to the opening of four new
offices in Dallas, Texas, London, England, Tampa, Florida and the metropolitan
Washington, D.C. area, including expenses related to the hiring of personnel
required to staff the new offices and an increase in expenditures for
recruitment and training of IT professionals. The number of management, sales
and administrative staff increased from 46 at the end of 1995 to 101 at the
end of 1996.
In 1996, the Company had $307,000 of in-process research and development
expense related to the acquisition of Noetix and amortization of intangible
assets of $116,000 related to acquisitions made by the Company in 1996.
In each of 1995 and 1996, the Company had other income of $115,000
consisting primarily of interest income on cash and cash equivalents.
The Company's effective income tax rate in 1996 was 40.1% compared with
35.1% in 1995. The increase in 1996 was primarily attributable to purchased
research and development costs for software development of an acquired
business and an increase in liability for state income tax resulting from the
geographic expansion of ARIS' service offerings.
19
<PAGE>
1995 COMPARED TO 1994
The Company's revenue was $14.8 million in 1995, representing a 109.2%
increase over revenue of $7.1 million in 1994. The Company's single largest
client accounted for 21.8% and 20.0% of revenue in 1995 and 1994,
respectively. The Company's five largest clients in 1995 accounted for 52.9%
of revenue as compared to 38.2% of revenue in 1994. See "Risk Factors--
Customer Concentration" and "Business--Clients."
Consulting revenue was $9.7 million in 1995, representing a 58.6% increase
over revenue of $6.1 million in 1994. This increase reflects an increase in
the number and size of consulting projects and an increase in the average
number of billable consultants and project managers over the period.
Training revenue was $4.8 million in 1995, compared with $551,000 in 1994.
This increase reflects the impact of additional revenue resulting from the
acquisition of Clarity, high demand for new course offerings in Microsoft and
Oracle technologies, the expansion of existing training facilities in the
Seattle, Washington area and the opening of a new training center in the
Portland, Oregon area. In addition, the Company began offering classes to the
public in 1995 and held 194 public classes in that year.
The Company's software revenue was $205,000 in 1995, compared with $369,000
in 1994. In 1994, the Company's software revenue included a one-time payment
of $125,000 made by OpenVision Technology to acquire rights to resell ARIS
DFRAG. The remaining decrease was the result of declining sales of ARIS DFRAG
3.0 prior to the release of ARIS DFRAG 4.0 in January 1996.
Cost of consulting and training was $7.2 million in 1995, representing a
97.3% increase from $3.6 million in 1994, but declined as a percentage of
combined consulting and training revenue from 54.4% in 1994 to 49.3% in 1995.
The decrease in cost of consulting and training as a percentage of combined
consulting and training revenue is primarily attributable to increased
utilization of consultants and project managers, an increase in the average
billing rate and the addition of $4.3 million in training revenue that had
slightly lower costs.
Cost of software was $42,000 in 1995 as compared with $47,000 in 1994. This
decrease is attributable to the decline in sales of ARIS DFRAG 3.0 in 1995
prior to the release of ARIS DFRAG 4.0 in January 1996.
SG&A expense was $4.6 million in 1995, representing a 119.2% increase from
$2.1 million in 1994. SG&A expense increased as a percentage of total revenue
from 29.5% in 1994 to 30.9% in 1995. The increase is primarily due to
generally higher expenses required to expand ARIS' training activities,
including increased facility and equipment expenses, an increase in marketing
expenses, and an increase in the number of sales, management and
administrative personnel. Full-time sales, management and administrative
personnel increased from 14 at the end 1994 to 46 at the end of 1995. In
addition, the Company incurred approximately $125,000 in non-recurring charges
related to the acquisition and subsequent integration of Clarity in 1995.
In 1995, the Company had other income of $115,000 as compared with other
income of $11,000 in 1994. The increase in 1995 is attributable primarily to
interest income, investment income realized on an equity fund investment and
income realized from the sale of fixed assets.
The Company's effective income tax rate was 35.1% in 1995 and 36.6% in 1994.
This decrease is primarily the result of a one time tax rebate in Oregon in
1995.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statements of operations for each of the nine quarters in the period ended
March 31, 1997 and the percentage of the Company's total revenue represented
by each item in the respective quarter. In the opinion of management, this
information has been presented on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Prospectus, and all necessary
adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the unaudited quarterly
results when read in conjunction with the Consolidated Financial Statements of
the Company and related Notes thereto. The operating results for any quarter
should not be considered indicative of results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Consulting............. $2,544 $2,535 $2,221 $2,425 $2,543 $3,497 $4,532 $5,740 $ 6,633
Training............... 818 1,168 1,372 1,463 1,778 2,601 2,217 2,789 3,243
Software............... 59 50 42 54 106 176 386 533 533
------ ------ ------ ------ ------ ------ ------ ------ -------
Total revenue.......... 3,421 3,753 3,635 3,942 4,427 6,274 7,135 9,062 10,409
------ ------ ------ ------ ------ ------ ------ ------ -------
Cost of sales:
Consulting and
training.............. 1,626 1,773 1,825 1,952 2,177 3,001 3,681 4,494 4,901
Software............... 6 3 15 18 4 13 21 55 48
------ ------ ------ ------ ------ ------ ------ ------ -------
Total cost of sales.... 1,632 1,776 1,840 1,970 2,181 3,014 3,702 4,549 4,949
------ ------ ------ ------ ------ ------ ------ ------ -------
Gross profit........... 1,789 1,977 1,795 1,972 2,246 3,260 3,433 4,513 5,460
Operating expenses:
Selling, general and
administrative........ 933 971 1,265 1,383 1,445 2,064 2,462 4,235 3,751
------ ------ ------ ------ ------ ------ ------ ------ -------
Income from operations.. 856 1,006 530 589 801 1,196 971 278 1,709
Other income (expense),
net................... 2 25 26 62 2 44 21 48 (42)
------ ------ ------ ------ ------ ------ ------ ------ -------
Income before income
tax.................... 858 1,031 556 651 803 1,240 992 326 1,667
Income tax expense..... 296 356 190 244 297 451 362 237 623
------ ------ ------ ------ ------ ------ ------ ------ -------
Net income.............. $ 562 $ 675 $ 366 $ 407 $ 506 $ 789 $ 630 $ 89 $ 1,044
====== ====== ====== ====== ====== ====== ====== ====== =======
Net income per share.... $ 0.06 $ 0.08 $ 0.04 $ 0.05 $ 0.06 $ 0.09 $ 0.07 $ 0.01 $ 0.12
====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Consulting............. 74.4% 67.5% 61.1% 61.5% 57.4% 55.7% 63.5% 63.3% 63.7 %
Training............... 23.9 31.1 37.7 37.1 40.2 41.5 31.1 30.8 31.2
Software............... 1.7 1.4 1.2 1.4 2.4 2.8 5.4 5.9 5.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenue.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of sales:
Consulting and
training.............. 47.5 47.2 50.2 49.5 49.2 47.8 51.6 49.6 47.1
Software............... 0.2 0.1 0.4 0.5 0.1 0.2 0.3 0.6 0.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of sales.... 47.7 47.3 50.6 50.0 49.3 48.0 51.9 50.2 47.6
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit........... 52.3 52.7 49.4 50.0 50.7 52.0 48.1 49.8 52.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative........ 27.3 25.9 34.8 35.1 32.6 32.9 34.5 46.7 36.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from operations.. 25.0 26.8 14.6 14.9 18.1 19.1 13.6 3.1 16.4
Other income (expense),
net................... 0.1 0.7 0.7 1.6 -- 0.7 0.3 0.5 (0.4)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income
tax.................... 25.1 27.5 15.3 16.5 18.1 19.8 13.9 3.6 16.0
Income tax expense..... 8.7 9.5 5.2 6.2 6.7 7.2 5.1 2.6 6.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income.............. 16.4% 18.0% 10.1% 10.3% 11.4% 12.6% 8.8% 1.0% 10.0 %
===== ===== ===== ===== ===== ===== ===== ===== =====
- --------
Cost of sales:
Consulting and
training(1)............ 48.3% 47.9% 50.8% 50.2% 50.4% 49.2% 54.5% 52.7% 49.6 %
Software(2)............. 10.2% 6.0% 35.7% 33.3 3.8% 7.4% 5.4% 10.3% 9.0 %
</TABLE>
- --------
(1) Expressed as a percentage of combined consulting and training revenue.
(2) Expressed as a percentage of software revenue.
The Company's operations and related revenue and operating results
historically have varied from quarter to quarter, and the Company expects
these variations to continue. Factors causing such fluctuations have included
and may include: the number, size and scope of consulting projects, the
contractual terms and degree of completion of such projects, project delays,
variations in utilization rates and average billing rates for consultants and
project managers due to vacations, holidays and the integration of newly hired
consultants, the inability of the Company to conduct as many four- and five-
day courses due to national holidays and vacation schedules, particularly in
the fourth quarter of each year, frequency of training classes and demand for
training following new software product releases, variations in fill rates in
training classes, integration of acquired entities and general economic
conditions.
During 1995, consulting revenue decreased slightly in each of the second and
third quarters primarily due to reorganization of the consulting business from
a highly-centralized model to a decentralized regional model, the loss of
several consultants to competitors and clients and decreased levels of
employee utilization due to the integration of newly hired consultants and
seasonality. In the second half of 1995, the Company assigned a manager to
each region to focus on employee satisfaction and retention and hired a
dedicated recruiting staff. During 1996 and the first quarter of 1997
consulting revenue increased sequentially each quarter.
Except for the third quarter of 1996, training revenue generally increased
in each of the nine quarters presented, although growth in training revenue
was generally slower in the third and fourth quarters of each year due to
seasonality. For the third quarter of 1996, training revenue decreased by
14.8% due to the centralized scheduling of classes, which resulted in an
inaccurate assessment of regional demand for specific course titles, and the
integration of SQLSoft and the acquisition of SofTeach, each of which diverted
significant management resources. The Company believes it has addressed these
issues by decentralizing class scheduling and implementing an acquisition
strategy that dedicates specific ARIS personnel, not responsible for other
operational tasks, to the integration of an acquired entity.
Cost of consulting and training has increased in each of the nine quarters
presented due to steady hiring of consultants, project managers and
instructors to support an increased number of consulting projects and training
classes. Unanticipated variations in the number and timing
22
<PAGE>
of consulting projects, fill rates for training classes, average utilization
rates and average billing rates of consultants have resulted in quarterly
fluctuations in gross margins. Cost of consulting and training as a percentage
of combined consulting and training revenue is generally higher in the third
and fourth quarter of each year due to the seasonality of the Company's
business. During the summer months vacation schedules of client personnel
affect the demand for training classes. In addition, the Company conducts a
six-to-eight week training course for newly hired IT professionals each
summer, which, coupled with vacation schedules of consultants, results in
lower than average utilization rates for the Company's consultants. In the
fourth quarter, training revenue is adversely impacted by the Company's
inability to conduct four- and five-day classes during the shortened work
weeks in that quarter due to national holidays.
SG&A expense increased in absolute dollars in each of the nine quarters
presented as the Company incurred significant non-recurring expense associated
with the opening of three new training facilities, the acquisition of four
companies and the hiring of management, sales and marketing and administrative
staff to support this growth. During 1996, ARIS' accounting staff increased
from three to seven, its sales staff increased from three to nine and its IT
staff increased from three to seven. Also during the nine quarters presented,
the Company developed and implemented a regional management infrastructure.
SG&A expense as a percentage of total revenue fluctuated over the nine
quarters presented. This quarterly variation in margin is primarily the result
of the timing of expenses incurred in opening new training facilities and the
acquisition and integration of five companies. In the first quarter of 1995,
SG&A expense as a percentage of total revenue was 27.3% primarily due to non-
recurring expenses related to the acquisition of Clarity in January 1995. In
the third and fourth quarters of 1995, SG&A expense was 34.8% and 35.1%,
respectively, as a result of costs associated with the implementation of a
regional management infrastructure, the expansion of training facilities in
the Seattle, Washington area and in Denver, Colorado and increased marketing
expenses. SG&A expense as a percentage of total revenue was relatively
constant at 32.6% and 32.9% in each of the first and second quarters of 1996,
respectively; increasing to 34.5% in the third quarter of 1996 as a result of
the expenses associated with the opening of a new office near London, England,
the acquisition of SQLSoft, further expansion of the Company's training
facilities and headquarters in the Seattle, Washington and Portland, Oregon
areas, the costs associated with the assumption of the operations of Cray, and
the establishment of a subsidiary for the development and marketing of ARIS'
software products. In the fourth quarter of 1996, SG&A expense as a percentage
of total revenue increased to 46.7% as a result of the aggregate impact of the
ongoing integration costs related to the SQLSoft acquisition, the assumption
of the operations of Cray, the acquisition and subsequent integration costs of
SofTeach and Noetix, the opening of a new training center in the Washington
D.C. area, the expenses associated with the opening of a new consulting office
in Tampa, Florida, and the hiring and training of management and
administrative personnel to support the regionalized management infrastructure
implemented for training operations during this quarter.
Due to the foregoing factors, among others, it is possible that in some
future quarter the Company's results of operations may vary from the
expectations of the securities analysts or investors. In such event, the price
of the Company's Common Stock would likely be materially affected. See "Risk
Factors--Variability of Quarterly Operating Results."
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Through 1995, the Company financed its business activities primarily through
cash generated from operations. Net cash provided from operations was 541,000
for the quarter ended March 31, 1997, $706,000 in 1996, $2.2 million in 1995
and $477,000 in 1994. At March 31, 1997, the Company held cash and cash
equivalents of $485,000 and investments in marketable securities of $1.4
million.
In 1996, 1995 and 1994, the Company invested a significant portion of its
net income in an equity fund; amounts invested were $462,000, $381,000 and
$368,000, respectively. On April 14, 1997, this fund was liquidated and the
net proceeds of $1.35 million were used to repay a portion of the $1.9 million
outstanding under the Company's revolving credit facility with U.S. Bank. In
the future, the Company intends to invest its surplus cash in short-term,
interest-bearing, investment-grade securities.
Accounts receivable increased from $2.7 million at December 31, 1995 to $5.2
million at December 31, 1996 to $8.6 million at March 31, 1997. The average
collection cycle for accounts receivable remained relatively constant for each
of the periods presented.
During the period from December 31, 1995 to March 31, 1997, intangible and
other assets increased from $81,000 to $3.4 million primarily as a result of
the acquisitions completed during the period. Amortization expense of
approximately $425,000 will be recorded during 1997 related to these
intangibles.
At December 31, 1996, the Company had $1.0 million outstanding on a line of
credit with U.S. Bank. In March 1997, the Company replaced this existing line
of credit with a new line of credit with U.S. Bank, which provides for
borrowings of up to $8.0 million (the "U.S. Bank Facility"). Under the U.S.
Bank Facility, which expires on June 1, 1998, the Company may borrow up to
$8.0 million on a revolving basis, of which $5.0 million may be converted to a
term loan. Borrowings under the U.S. Bank Facility bear interest at a variable
rate based on certain financial ratios and range from the London Inter-bank
Offered Rate (LIBOR) plus 1.75% to LIBOR plus 3.0%. The effective interest
rate for borrowings under the U.S. Bank Facility was 9.375% as of May 26,
1997. The U.S. Bank Facility includes covenants relating to the maintenance of
certain financial ratios, such as minimum net worth, and provides that all
borrowings are collateralized by the Company's assets. The Company is in
compliance with all covenants contained in the U.S. Bank Facility except for
one covenant regarding maintenance of the ratio of current assets to current
liabilities. U.S. Bank has waived the Company's noncompliance with this ratio
until the earlier of the closing of this Offering or July 15, 1997.
Additionally, the U.S. Bank Facility prohibits Oxford from incurring
indebtedness in excess of $600,000 from any non-U.S. bank. As of March 31,
1997, $1.9 million was outstanding under the revolving portion of the U.S.
Bank Facility and $4.0 million was outstanding under the fixed-term portion of
the U.S. Bank Facility. The Company is required to repay the term loan from
the proceeds of this Offering within ten days of the closing of this Offering.
The term loan was incurred primarily to fund the Company's repurchase of
415,000 shares of Common Stock from certain shareholders at $8.50 and $9.75
per share in February and March of 1997. See "Certain Transactions."
In connection with the acquisition of the assets of SofTeach, the Company
issued to SofTeach a promissory note in the principal amount of $500,000 which
bears interest at 6%, and is payable in two installments of $250,000 each,
plus accrued interest. The Company paid $250,000 on this note on April 2, 1997
and the balance is due on July 1, 1997.
24
<PAGE>
The Company invested $1.2 million, $911,000 and $220,000 in facilities and
equipment, including computer hardware, in 1996, 1995 and 1994, respectively.
Additionally, the Company invested $475,000 in facilities and equipment during
Q1 1997. During Q1 1997 and fiscal 1996, the Company expended $93,000 and
$1.4 million, respectively, for the acquisition of the training and software
businesses it acquired during those periods. The Company estimates capital
expenditures during fiscal 1997 of approximately $2.0 million to expand the
Company's training centers in the Portland, Oregon and Washington, D.C. areas,
to hire up to an additional 70 employees and to purchase computers and
equipment to support the Company's anticipated expansion.
The Company believes that the expected net proceeds from this Offering,
combined with cash provided from its operations and borrowings available under
the U.S. Bank Facility, will be sufficient to meet the Company's working
capital and capital expenditure requirements for the next 18 months or longer.
The Company does not believe that its international operations currently
subject it to material currency fluctuation risks. Revenue from the operations
of Oxford are denominated primarily in British pounds. The Company's revenue
from its other international operations are denominated in U.S. dollars. The
Company does not plan to repatriate earnings from Oxford to the United States
nor make significant advances to Oxford. As the Company's international
operations expand, and to the extent that its inter-company funding policies
change, management intends to continue to evaluate the impact of potential
fluctuations in foreign exchange rates on the Company's results of operations
and liquidity. Should management determine that foreign exchange rate
fluctuations are likely to impact materially the Company's results of
operations or liquidity, the Company may enter into forward exchange contracts
or engage in other hedging activities in order to mitigate such risks.
In February 1997, the Financial Accounting Standards Board issued Statement
on Financial Accounting Standard No. 128 "Earnings Per Share" (SFAS 128) which
requires disclosure of basic earnings per share and diluted earnings per share
and is effective for periods ended subsequent to December 15, 1997. The effect
of adoption of SFAS 128 would be as follows:
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED
----------------------------- MARCH 31,
1994 1995 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
As reported:
Net income per share.................. $ 0.12 $ 0.24 $ 0.23 $ 0.12
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding. 6,675,570 8,487,011 8,581,572 8,512,537
========= ========= ========= =========
Pro forma:
Basic net income per share............ $ 0.14 $ 0.24 $ 0.24 $ 0.12
========= ========= ========= =========
Weighted average number of common
shares outstanding................... 5,887,335 8,464,767 8,480,334 8,401,066
========= ========= ========= =========
Diluted net income per share.......... $ 0.12 $ 0.24 $ 0.23 $ 0.12
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding. 6,675,570 8,487,011 8,581,572 8,512,537
========= ========= ========= =========
</TABLE>
The difference between as reported and pro forma basic earnings per share
would have been more significant if stock options granted at prices below the
proposed initial public offering price and issued during the twelve-month
period immediately preceding this Offering included in accordance with Staff
Accounting Bulletin Number 83 had not been included.
25
<PAGE>
BUSINESS
ARIS provides an integrated IT solution consisting of consulting and
training services primarily focused on Oracle and Microsoft technologies. ARIS
currently focuses on three core consulting competencies: packaged application
implementation, custom application development and systems architecture
planning and deployment. The Company currently offers 118 instructor-led
course titles for IT professionals conducted at ARIS' training centers and at
client facilities. The Company also develops, markets and supports proprietary
software products that enhance Oracle database management and Oracle packaged
applications. The Company believes that its ability to provide clients with an
integrated IT solution, coupled with its focus on leading-edge technologies,
provide it with a unique competitive advantage.
INDUSTRY BACKGROUND
Enterprises face a rapidly changing, highly competitive environment where
access to information through the use of information technology can result in
improvements in products and services, lower costs and increased client
satisfaction. As the pace of technological change accelerates, an enterprise's
ability to evaluate, integrate, deploy and leverage IT systems is becoming a
critical competitive issue. For example, enterprises are increasingly moving
from mainframe systems that run proprietary software to open systems based on
client/server architectures and Internet-enabled technologies. International
Data Corporation ("IDC") estimates that the 1995 worldwide market for IT
consulting was $19.8 billion and is projected to grow to $38.2 billion by the
year 2000.
The complex task of developing and implementing enterprise-wide, mission
critical solutions is a costly and time consuming undertaking. For example,
enterprise resource planning projects, which generally include planning and
integration of manufacturing, distribution and financial systems, require
cooperation and coordination of virtually every department within an
enterprise. Many enterprises do not have adequate personnel with the requisite
technology skills or are reluctant to expand or retool their existing IT
departments for particular implementation projects. Confronted with the
challenge of designing and implementing more complex IT systems to accomplish
their goals, many enterprises are turning to independent IT service providers.
To maximize the effectiveness of increasingly complex information systems,
enterprises must ensure that their IT employees possess the skills to operate,
maintain and maximize performance of these systems. Each time an enterprise
implements a new technology or updates its existing technology, employee
training is required and, in many large enterprises, IT training is virtually
continuous. IDC estimates that the 1995 worldwide market for IT education and
training was $14.9 billion and is projected to grow to $27.0 billion by 2000.
In 1995, the training of IT professionals represented $3.3 billion of the $6.1
billion IT education and training market in the United States. Due to a
shortage of in-house instructors experienced in the latest technologies and
the high cost of developing and maintaining internal training courses in
rapidly evolving technologies, many enterprises are turning to outside firms
to train their IT professionals.
THE ARIS SOLUTION
ARIS provides its clients with an integrated IT solution consisting of
consulting and training services that enables them to quickly leverage new
technologies to deliver and improve operational processes and performance. The
ARIS solution includes the following characteristics:
26
<PAGE>
COMPLETE IT SOLUTION. ARIS offers its clients an integrated IT solution that
addresses the technology requirements and the resource constraints clients
face when adopting a new technology. The Company believes that its combination
of consulting, training and software products enables its clients to rapidly
and effectively implement technologies that improve business processes and the
information flow within an organization. Because ARIS develops in-depth
knowledge regarding the needs and objectives of its consulting clients, ARIS
believes it is strategically positioned to provide custom training solutions
for these clients.
CONSULTING EXPERTISE IN HIGH-DEMAND, LEADING-EDGE TECHNOLOGIES. ARIS
fulfills the mission critical technology needs of its clients by designing and
implementing solutions using leading-edge technologies from vendors such as
Oracle and Microsoft. Expertise in leading-edge technologies allows ARIS to
enhance project quality, reduce development time and project costs and
effectively develop customized solutions. In addition, ARIS maintains
strategic relationships with certain software vendors, providing the Company
access to technologies in the early or pre-release cycles of software
development. ARIS consultants and project managers use a proprietary
methodology, ARIS RAPIDMethod, for packaged application implementation and
Oracle's CASE*Method for custom application development relating to Oracle
technologies.
QUALITY COURSE OFFERINGS FOR HIGH-DEMAND, LEADING-EDGE TECHNOLOGIES. ARIS
primarily provides public and private instructor-led training to IT
professionals on leading-edge technologies including Microsoft Windows NT, SQL
Server, Exchange Server, and Visual Basic; Oracle database administration and
development tools such as Designer/2000 and Developer/2000; Sun Java and
Solaris; Microsoft Internet and Intranet technologies; and general networking
technologies. The Company uses vendor-supplied and proprietary courseware and
training methodologies. The Company is a Microsoft ATEC and an independent
provider of Oracle training. The Company also is a Sun Educational Services
U.S. Strategic Partner for Seattle, Washington and Portland, Oregon.
STRATEGY
The Company's objective is to be a leading provider of integrated IT
solutions by pursuing the following strategies:
LEVERAGE SYNERGIES BETWEEN CONSULTING AND TRAINING. By offering a
combination of consulting and training services, the Company is able to: (i)
capitalize on cross-selling opportunities between training and consulting;
(ii) increase client referrals; (iii) enhance its name recognition; and (iv)
provide a complete solution to its clients. The Company encourages its
instructors to participate in consulting projects, enabling instructors to
improve their technical knowledge with practical software implementation
experience. In addition, the Company offers ongoing training in the latest
technologies to its consultants and project managers.
FOCUS ON LEADING-EDGE TECHNOLOGIES. The Company intends to maintain its
alignment with leading-edge technology vendors such as Oracle and Microsoft.
By focusing on leading-edge technologies, the Company is able to offer
specialized and value-added services to its clients. ARIS may shift or expand
its vendor focus over time in order to maintain alignment with leading-edge,
emerging technologies.
ATTRACT AND RETAIN HIGHLY SKILLED IT PROFESSIONALS. The Company's success
depends on its ability to attract, train, motivate and retain highly skilled
IT professionals. The Company believes it offers its employees: (i) multiple
professional opportunities and challenges to work in one or more of the
Company's consulting, training and software divisions; (ii) the ability to
work with leading-edge technologies; (iii) attractive compensation plans that
align employees' interests
27
<PAGE>
and goals with those of the Company; (iv) a stimulating, flexible,
entrepreneurial work environment; and (v) the opportunity to receive
continuous, ongoing technical training. These factors have resulted in a
turnover rate which management believes is below the industry average.
MAINTAIN HIGH LEVELS OF CLIENT SATISFACTION. The Company believes that
satisfying client expectations is critical to expanding relationships with
existing clients and receiving positive references for future sales. The
Company requests that its clients complete evaluations of its training classes
and consulting projects and a percentage of total cash compensation for
consultants and project managers and instructors is directly linked to client
satisfaction.
EXPAND GEOGRAPHIC PRESENCE. The Company intends to expand its operations by
opening or acquiring additional consulting offices and training centers in
strategic geographic locations, including opening training centers in markets
where it currently has consulting offices. ARIS also intends to expand
internationally to better service its multinational clients and to gain access
to new markets.
PURSUE STRATEGIC ACQUISITIONS. Since January 1995, ARIS has pursued an
aggressive acquisition strategy acquiring five complementary businesses. The
Company plans to continue to pursue additional strategic acquisitions in order
to: (i) acquire expertise in new technologies; (ii) expand its client base;
(iii) gain access to qualified IT professionals; and (iv) enter new geographic
markets.
ARIS CONSULTING AND SOFTWARE PRODUCTS
ARIS provides mission critical IT consulting services primarily to clients
that require assistance planning, designing, developing, testing and deploying
Oracle and Microsoft technologies. ARIS' vendor specific focus has enabled it
to develop greater depth of expertise and proprietary methodologies. ARIS
currently focuses on three core consulting competencies: packaged application
implementation, custom application development and systems architecture
planning and deployment. As of March 31, 1997, ARIS employed 142 consultants
and project managers in eight offices. The Company's consulting clients are
generally medium to large businesses and governmental agencies. See Note 13 of
Notes to Consolidated Financial Statements for certain financial information
relating to the Company's consulting business.
PACKAGED APPLICATION IMPLEMENTATION. ARIS consulting focuses on the high
growth packaged enterprise resource planning market, particularly the
implementation of Oracle database management and Oracle packaged applications
("Oracle Applications"). ARIS' consultants and project managers use a
proprietary methodology, ARIS RAPIDMethod, to implement Oracle Applications
consistently and reliably. As of March 31, 1997, ARIS was engaged in 36 of
these projects, which typically require five to 15 consultants, and generally
extend for a period of six months to two years. The following is a case study:
In 1994, Tektronix, Inc., a leading manufacturer of electronic
hardware, engaged ARIS to regionalize and standardize the financial and
distribution operations of Tektronix' diverse independent business
divisions around the world, which had been using nearly 500 separate
computer information systems. The Company's relationship with Tektronix
began with an engagement to implement Oracle General Ledger, Accounts
Payable, and Project Accounting applications at Tektronix' corporate
headquarters. At the same time, Tektronix was in the process of
replacing its legacy order management/accounts receivable applications.
Because of ARIS' demonstrated abilities and knowledge of Oracle
Financials, Tektronix engaged ARIS to assist with the Order Management
project. ARIS has been involved in the implementation of General
Ledger, Financial Reporting, Purchasing, Accounts Payable, Project
Accounting, Fixed
28
<PAGE>
Assets, Order Entry, Inventory and Accounts Receivable. ARIS
consultants and project managers are currently working with Tektronix
on the implementation of world-wide Oracle Applications including
Accounts Receivable, Order Entry and Inventory at Tektronix locations
in 30 countries.
CUSTOM APPLICATION DEVELOPMENT. ARIS consulting provides custom application
development services, particularly client/server and Internet/intranet
projects involving Oracle and Microsoft technologies. For database
development, ARIS consultants and project managers use Oracle's CASE*Method
information engineering methodology, often in conjunction with Oracle's CASE
tool, Designer/2000. In addition, ARIS has developed a library of proprietary
reusable software that allows its consultants and project managers to
accelerate custom application development. As of March 31, 1997, ARIS was
engaged in 39 of these projects, which typically require three to 10
consultants, and generally extend for a period of four months to one year. The
following is a case study:
As part of its efforts to enforce federal excise tax provisions
relating to the sale of diesel fuel, the U.S. Internal Revenue Service
("IRS") engaged ARIS in a $3.0 million contract to develop a customized
software system that would permit IRS field agents wireless remote
access to Oracle databases. ARIS designed and implemented a system that
allows IRS agents to review the compliance and enforcement histories of
diesel fuel users using a laptop or handheld computer. This system has
largely eliminated the need for IRS agents to carry certain files into
the field and to send reports and correspondence to IRS facilities
through the mail. Following the successful completion of this project,
the IRS engaged ARIS to perform additional consulting work and to
provide training services to IRS information specialists.
SYSTEMS ARCHITECTURE PLANNING AND DEPLOYMENT. ARIS consulting provides
systems architecture planning and deployment for IT architectures including
Microsoft BackOffice, Oracle databases, UNIX and general networking
architectures. System architecture engagements involve a range of services
including capacity planning, implementation design and planning, readiness
assessment, performance tuning and monitoring, configuration and installation,
infrastructure management, process evaluation and complete database
administration outsourcing. As of March 31, 1997, ARIS was engaged in 19 of
these projects, which typically require one to five consultants, and generally
extend for a period of one to six months. The following is a case study:
The Washington State Department of Social and Health Services
("DSHS") retained ARIS to design an Internet protocol ("IP") addressing
scheme and Microsoft Windows NT domain strategy that would be
appropriate for a distributed environment with limited administrative
support for DSHS' 32 locations and over 3,000 computers throughout
Washington. The IP addressing plan had to co-exist with a number of IP
based machines already on the network that were not part of the DSHS
upgrade. ARIS consultants faced significant constraints with regard to
the number of network addresses available and the number of sub-
networks already deployed at the various sites. ARIS consultants
successfully designed and deployed a distributed architecture
throughout DSHS on a timely basis.
The Company assigns consultants to projects based on specific requirements.
Consultant utilization, billing rates and headcount are reviewed regularly by
project managers and regional managers, and is reviewed monthly by senior
management, to ensure maximum efficiency. Project staffing varies depending on
the number of project engagements and the size, duration and location of each
engagement. As projects are completed or as new consultants are hired, there
may be periods when certain consultants and project managers are not assigned
to active
29
<PAGE>
client projects. During these periods of non-assignment, consultants and
project managers receive training on new technologies, develop methodologies
and tools and assist in developing the Company's internal data systems.
ARIS SOFTWARE PRODUCTS. The Company currently has two software products,
ARIS DFRAG and NoetixViews. In 1993, the Company developed ARIS DFRAG, a tool
used by database administrators to identify and reorganize "fragmented" data
in Oracle databases, thereby improving performance. In January 1996, the
Company released ARIS DFRAG 4.0, which includes a graphical user interface
based upon Microsoft Windows which can be used to browse and manage database
objects within an Oracle database. ARIS consulting uses ARIS DFRAG in many of
its consulting projects. As of March 31, 1997, ARIS had sold 395 ARIS DFRAG
licenses to 87 clients in 13 countries.
The Company acquired Noetix in October 1996. NoetixViews allows end users to
view data from Oracle Applications, including General Ledger, Accounts
Payable, Accounts Receivable, Inventory, Purchase Order, Order Entry, Fixed
Assets, Bill of Material, Work in-Process, Project Costing and Project
Billing. The Company also has developed an interface to NoetixViews that is
available for Oracle's new version of its Discoverer/2000, an end user
decision support product suite. As of March 31, 1997, ARIS had sold 550
NoetixViews module licenses to 110 clients in five countries.
Management believes ARIS' software products enhance its consulting services.
Through its consulting and training services, ARIS expects to continue to
identify development opportunities for new software products. See Note 13 of
Notes to Consolidated Financial Statements for certain financial information
relating to the Company's software business.
ARIS TRAINING
ARIS is a leading provider of training to IT professionals in Microsoft
BackOffice, Oracle Applications, Sun Solaris and Java, Internet, and
networking technologies. ARIS provides instructor-led training through
regularly scheduled open enrollment classes, private classes (using both
standard and customized content), and on-line training. ARIS also provides
other training related services such as IT skills assessment, "train the
trainer" programs, curriculum development and training consulting. The Company
offers public open enrollment classes in nine training centers located in the
metropolitan areas of Seattle, Washington, Portland, Oregon, Washington, D.C.,
and Denver, Colorado, as well as London, Birmingham and Oxford in the United
Kingdom. The Company also delivers private training both at its training
centers and at client facilities worldwide. See Note 13 of Notes to
Consolidated Financial Statements for certain financial information relating
to the Company's training business.
As of March 31, 1997, the Company employed 72 instructors, of whom 60 were
certified by Microsoft, Sun or both. Each of the Company's instructors has, on
average, more than 10 years of professional IT experience. During 1996, ARIS
offered 95 course titles and its instructors conducted 989 classes. At March
31, 1997, the Company had 44 classrooms with a capacity of 479 students. The
average duration of a class during 1996 was 3.8 days. The Company seeks to
achieve a high fill rate for each of its public classes without exceeding a
maximum class size in order to preserve a high level of individual student
attention. The Company devotes considerable resources to maintaining the
skills of its instructors who are required to maintain the certifications
necessary to teach new course titles as a part of ARIS' Microsoft and Sun
authorized training designations.
ARIS is a Microsoft ATEC and an independent provider of Oracle training. The
Company is a Sun Educational Services U.S. Strategic Partner for Seattle,
Washington and Portland, Oregon. Oxford also is a Microsoft ATEC and has
received ISO 9001 certification.
30
<PAGE>
ARIS uses both vendor-designed and proprietary courseware and training
methodologies. The Company continually evaluates market demand for training in
its core technologies and updates current course titles or develops new course
titles to satisfy the changing needs of the market. To ensure that its course
titles and instructors meet the needs of the market and maintain the Company's
quality standards, each class participant is asked to complete an evaluation of
the course materials and of the instructor at the end of their training. These
evaluations are used by the Company to modify course offerings and training
techniques in order to improve instructor performance.
The following are ARIS' 118 current course titles:
ORACLE TECHNOLOGY
- --------------------------------------------------------------------------------
ORACLE GENERAL ORACLE DBA
Oracle Queries Using the SQL Oracle7 Database Architecture and
Language Administration
Oracle7 Foundation Oracle7 Advanced Database
Administration Workshop
Developing Oracle7 Stored Procedures ORACLE DEVELOPER/DESIGNER TOOLS
Using PL/SQL
Oracle7 Application Tuning Developer/2000 Forms 4.5
Advanced PL/SQL Workshop Developer/2000 Reports 2.5
Oracle7 Precompiler Interface Developing Visual Basic Applications
Using Oracle7
Oracle Designer/2000 Workshop
- --------------------------------------------------------------------------------
MICROSOFT TECHNOLOGY
- --------------------------------------------------------------------------------
ACCESS EXCHANGE SERVER
Introduction to Microsoft Access 7.0 Installing and Configuring Microsoft
Exchange Server 4.0
Intermediate Microsoft Access 7.0 Installing and Configuring Microsoft
Exchange Server 5.0
Advanced Microsoft Access 7.0
Creating Applications with Access Core Technologies of Microsoft
2.0/7.0 Exchange Server 4.5
Programming with Microsoft Access Microsoft Exchange Server Multisite
for Windows 95 and Internet Environments
Microsoft Access 7: Introduction Microsoft Exchange Server Support
Microsoft Access 7: Advanced Implementing MS Mail 3.5
C++ Mastering Microsoft Exchange
Development
Programming in Microsoft Visual C++ FOXPRO
for C Programmers
Programming in Microsoft Visual
Programming in Visual C++ FoxPro 3.0 for Windows
EXCEL
Application Development with Excel
5.0
31
<PAGE>
MICROSOFT TECHNOLOGY
- --------------------------------------------------------------------------------
GENERAL SYSTEM SUPPORT
Migrating to Windows 95 Using
Systems Management Server 1.1
Supporting Microsoft Systems
Management Server 1.2
Planning a Microsoft Systems
Management Server Site 1.2
Internetworking Microsoft TCP/IP on
Microsoft Windows NT 3.5
Internetworking Microsoft TCP/IP on
Microsoft Windows NT 4.0
Supporting SNA Server 3.0
OFFICE
Mastering Microsoft Office 97
Development
Installing and Supporting Microsoft
Office 97
PROJECT
Introduction to Project 4.1
Intermediate/Advanced Project 4.1
SQL SERVER
Fast Track 1: Microsoft SQL Server
Fundamentals
System Administration for Microsoft
SQL Server 6.5
Implementing a Database Design on
Microsoft SQL Server 6.5
Performance Tuning and Optimization
of Microsoft SQL Server 6.5
Microsoft SQL Server Training
New Features of SQL Server 6.5
VISUAL BASIC
Fundamentals of Microsoft Visual
Basic 4.0
Programming with Microsoft Visual
Basic 4.0
Mastering Microsoft Visual Basic 4.0
Mastering Microsoft Visual Basic
Version 5.0
Mastering Microsoft Visual Basic 5.0
Fundamentals
VBA Fundamentals
WINDOWS PROGRAMMING
Microsoft Windows Operating Systems
and Services Architecture
Fundamentals of Programming
Microsoft Foundation Class Library
Applications
Intermediate Windows-Based
Programming Using MFC Libraries
Mastering MFC Development
Programming with Windows NT using C
Windows & Windows 95 Support
SUPPORTING MICROSOFT WINDOWS 95
Installing and Configuring Microsoft
Windows 95
Microsoft Windows 95 Training
Supporting Windows for Workgroups
Accelerated Training for Windows 3.1
& Windows for Workgroups 3.11
Supporting Windows 3.1 and DOS 6.2
WINDOWS NT 3.51
Supporting Microsoft Windows NT
Server 3.51
Accelerated Training for Microsoft
Windows NT 3.51
Supporting Microsoft Windows NT 3.51
Microsoft Windows NT Training
WINDOWS NT 4.0
Supporting Microsoft Windows NT
4.0--Core Technologies
Accelerated Training for Microsoft
Windows NT 4.0
Administering Microsoft Windows NT
4.0
Installing and Configuring Microsoft
Windows NT Server 4.0
Supporting Microsoft Windows NT
4.0--Enterprise Technologies
Enterprise Series: Implementing
Directory Services Using MS Windows
NT Server 4.0
Enterprise Series: Microsoft Windows
NT Server 4.0 Server Analysis and
Optimization
Enterprise Series: Microsoft Windows
NT Server 4.0 Network Analysis and
Optimization
Enterprise Series: Troubleshooting
Microsoft Windows NT Server 4.0 in
the Enterprise
Microsoft Windows NT 4.0 Network
Administration Training
Microsoft Windows NT 4.0 Technical
Support Training
Installing and Configuring Microsoft
Windows NT Workstation 4.0
Microsoft Windows NT 4.0 Overview
Windows NT 4.0 Upgrade
32
<PAGE>
SUN TECHNOLOGY
- --------------------------------------------------------------------------------
Solaris 2.X System Administration Solaris 2.X NIS+ Administration
Essentials with Workshop
Introduction to Solaris 2.X System Programming for Beginners with Java
Administration
Introduction to Java Programming
Solaris 1.X to Solaris 2.X System
Administration
Introduction to Java Programming
(Win95 Version)
Solaris 2.X System Administration
Java Application Programming
Managing Your Network Using SunNet
Manager
Advanced Java Programming Workshop
Solaris 2.X Network Administration
Solaris 2.X NIS+ Administration
with Workshop
- --------------------------------------------------------------------------------
INTERNET/INTRANET TECHNOLOGY
- --------------------------------------------------------------------------------
Mastering Internet Development with Supporting Microsoft Proxy Server
ActiveX Technologies
Mastering Enterprise Web Site
Internet Development with ActiveX Development
and Visual Basic Script
Microsoft Web Site Essentials
Introduction to Oracle PowerBrowser
Mastering Microsoft Visual J++
Web Authoring and Design with
Microsoft Internet Explorer Implementing Normandy Server
Microsoft Internet Information Implementing Microsoft Merchant
Server 2.0 Training Server
Implementing Internet Services in a Installing Microsoft Internet
Microsoft Network Information Server
Creating and Configuring a Web Supporting Microsoft Internet
Server Using Microsoft Tools Information Server 2.0
Administering and Supporting FrontPage Introduction
Microsoft FrontPage 97
- --------------------------------------------------------------------------------
GENERAL TECHNOLOGY
- --------------------------------------------------------------------------------
Networking Essentials New Technology Seminar for Managers
Introduction to C Programming Relational Technology--Executive
Director Overview
Introduction to UNIX
Understanding Object Technology
UNIX Korn Shell Programming
Relational Database Design Concepts
The following is a case study:
ARIS is a leading provider of Microsoft training through the ATEC
channel. In addition, Microsoft frequently engages ARIS for
development and delivery of training programs for Microsoft personnel,
Microsoft Partners, and the Solution Provider channel. ARIS has
participated in pre-release training for Microsoft on Windows 95,
Systems Management Server, SNA Server, Exchange Server, Internet
Information Server, Merchant Server, Microsoft Commercial Internet
Server, Visual Basic and, most recently, Microsoft NT Server Cluster
Technologies. ARIS believes it has facilitated the early adoption of
Microsoft technologies by delivering training in Microsoft
technologies in North America, Europe, Asia, Latin America, Africa and
Australia.
33
<PAGE>
RELATIONSHIPS WITH KEY VENDORS
The Company has developed strategic relationships with key vendors of
software, particularly Oracle, Microsoft and Sun. The Company participates in
a number of software application implementation programs established under the
Oracle Alliance Program, including membership as an authorized Oracle Reseller
and as a Complementary Software Provider (CSP). The Company also participates
in two of Oracle's Alliance Technology Initiatives, the Oracle Cooperative
Applications Initiative (CAI) and the Oracle System Management Tools
Initiative (SMTI). The Company has received a number of endorsements and
certifications from these vendors, including designation as a Microsoft
Solution Provider Partner, a Microsoft ATEC and a Sun Educational Services
U.S. Strategic Partner. These strategic relationships allow the Company to
gain access to beta versions of software and the software vendor's marketing
channels as well as to receive discounts on software. The Company regularly
participates with Microsoft in the development of courseware for new products
and trains Microsoft's employees during the early stages of a new product roll
out.
Certain of these software vendors also compete with the Company in providing
IT consulting and training services. Disputes between the Company and these
software vendors could result in the loss of vendor certifications, a
reduction in the number of client referrals or vendor actions which might
adversely affect the Company's ability to compete successfully with its
competitors. See "Risk Factors--Dependence on Key Vendors of Software" and "--
Competition."
SALES AND MARKETING
The Company sells its consulting and training services directly through its
regional sales forces. As of March 31, 1997, the Company had eight account
executives selling consulting services and five account executives and 11
telemarketing representatives selling training services. Software products are
sold by three internal telemarketing representatives and through referrals
from the Company's consulting operations. Other important client sources
include industry trade shows and referrals from, and joint marketing events
with, Oracle, Microsoft and other IT vendors. ARIS sales personnel are
compensated through a combination of a base salary and commissions.
Commissions are paid when services are performed or products are shipped
rather than when a contract is signed.
The ARIS marketing plan includes direct mail solicitations, advertising in
IT trade journals, trade show participation and seminars. The Company's course
catalogue and Internet web site are integral parts of its marketing effort.
34
<PAGE>
CLIENTS
The Company performs professional services for clients across a broad range
of industries and governmental entities. Set forth below is a representative
list of clients which generated at least $100,000 in revenue for the Company
or Oxford in 1996 and the services and products provided to them:
<TABLE>
<CAPTION>
NAME OF CLIENT CONSULTING TRAINING SOFTWARE
-------------- ---------- -------- --------
<S> <C> <C> <C>
Alaska Department of Transportation and Public
Facilities....................................... [X]
British Broadcasting Company (UK)................. [X]
City of Seattle................................... [X] [X] [X]
Channel Four Television Corporation (UK).......... [X]
Eagle Insurance Group............................. [X] [X]
ESCO Corporation.................................. [X] [X] [X]
Government Technology Service, Inc................ [X]
Hewlett Packard Company........................... [X]
Home Buyers Warranty.............................. [X] [X]
King County Department of Metropolitan Services... [X] [X] [X]
Lockheed Martin Corporation....................... [X] [X]
Micron Electronics, Inc. ......................... [X]
Microsoft Corporation............................. [X] [X]
National Westminster Group (UK)................... [X]
Nike, Inc......................................... [X] [X]
Oregon Health Sciences University................. [X] [X]
Quantum Corporation............................... [X] [X]
Quebecor, Inc..................................... [X] [X]
SCITEX America Corp. ............................. [X] [X]
Starbucks Coffee Company.......................... [X]
Sun Microsystems, Inc. ........................... [X]
Tektronix, Inc.................................... [X] [X] [X]
The Boeing Company................................ [X] [X] [X]
The Gates Rubber Company.......................... [X] [X]
TIG Holdings...................................... [X]
Tosco Northwest Company........................... [X] [X] [X]
U.S. Coast Guard.................................. [X]
U.S. General Services Administration.............. [X]
U.S. Internal Revenue Service..................... [X] [X]
Washington State Department of Transportation..... [X]
Washington State Department of Natural Resources.. [X] [X]
Weyerhaeuser Company.............................. [X] [X] [X]
</TABLE>
The Company has derived, and believes that it may continue to derive, a
significant portion of its revenue from a limited number of large clients. One
client, Tektronix, accounted for 9.1%, 21.8% and 20.0% of the Company's total
revenue in 1996, 1995 and 1994, respectively. There can be no assurance that
the volume of work performed for specific clients will be sustained from year
to year, or that a major client in one year will engage the Company in a
subsequent year. See "Risk Factors--Customer Concentration."
COMPETITION
The IT consulting industry and the IT training industry are generally
regarded as separate industries, each of which is rapidly growing and highly
competitive. Within each industry there are a large number of competitors,
many of which have significantly greater financial, technical, marketing and
human resources and greater name recognition than the Company. The
35
<PAGE>
Company believes that its ability to provide clients with an integrated IT
solution, coupled with its focus on leading-edge technologies, provide it with
a unique competitive advantage. ARIS differentiates itself from its consulting
and training competitors by striving to be first to market with new
technologies, by leveraging the synergies between consulting and training, by
delivering consulting and training in high-demand, leading-edge technologies,
by the breadth and depth of its curriculum, convenience of its course
scheduling, its ability to deliver consulting and training services in
numerous geographic locations, and the quality, skill and reputation of its
instructors, consultants and project managers. Nevertheless, the Company
competes with companies in both the consulting and training industries.
ARIS' principal competitors in the delivery of consulting services are the
consulting divisions of the large international accounting firms, the
consulting divisions of software vendors such as Oracle, and numerous
international, national and regional IT consulting firms.
The Company faces competition in the delivery of IT training services from
the in-house IT departments of its prospective clients, companies such as
International Business Machines and Hewlett-Packard, software vendors, other
Microsoft ATECs, and independent international, national and regional training
companies.
The Company focuses its software product development on solving problems
that few other software companies have addressed. The Company's software
product, ARIS DFRAG, competes with the system management tools distributed by
BMC Software, Platinum Technology and Compuware. Although the Company believes
few commercially available products currently compete directly with
NoetixViews, there can be no assurance that new competitive products will not
be developed by Oracle, third party software vendors or by in-house IT
departments of the Company's current or potential clients. Management believes
that its primary competition in software development will come from custom in-
house development. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY
The Company uses certain proprietary consulting and training methodologies,
courseware, software applications and products, trademarks and service marks,
and other proprietary and intellectual property rights. The Company relies
upon a combination of copyright, trademark and trade secret laws, as well as
nondisclosure and other contractual arrangements, to protect its proprietary
rights. The Company uses client licensing agreements and employee and third-
party nondisclosure and confidentiality agreements to limit access to and
distribution of its proprietary information.
The Company develops custom software applications and methodologies, and
training courses and methodologies for third party software products. The
training courses, methodologies and courseware are owned by the Company
through agreements with employees and subcontractors, but ownership of
software applications developed for clients is often assigned to the client,
with the Company retaining limited use licenses. The Company also develops
software application tools in the course of its consulting projects. The
Company generally seeks to retain significant ownership or marketing rights
for adaptation and reuse in subsequent projects. See "Risk Factors--
Intellectual Property Rights."
PERSONNEL AND HUMAN RESOURCES
As of May 26, 1997, the Company had 388 full-time employees, 290 of whom
were in the United States and 98 of whom were in the United Kingdom. Of this
total, 119 employees were involved in the sales, delivery and support of
training services, 184 employees were involved in the sales, delivery and
support of consulting services, 17 employees were involved in the sales,
marketing, development and support of software products, and 68 were involved
in corporate
36
<PAGE>
level management and administration. In addition, the Company retains the
services of subcontractors for certain consulting projects and to conduct
certain training services.
The Company places significant emphasis on the recruitment, training and
professional development of its employees, and offers a competitive
compensation package. These factors have resulted in attrition rates which
management believes are below the industry average.
The Company devotes considerable resources to its recruiting efforts. The
Company identifies prospective employees through referrals from existing
employees and clients, on-campus recruiting at colleges and universities, and
by advertising at trade shows and over the Internet. The Company currently has
three full-time recruiters.
The Company's consultants and project managers benefit from their ability to
receive ongoing training in the latest technological advances and developments
at the Company's training centers. The ability of the Company to train its
consultants and project managers internally provides the Company with a
competitive advantage over its competitors, many of whom must contract with
third-party instructors to keep their IT professionals current in the latest
technologies. In addition, the Company has a six-to-eight week training
program for its newly hired IT professionals which includes training in the
technologies comprising the Company's core competencies and training in the
Company's proprietary methodologies.
The Company's compensation package consists of a combination of salary,
stock options and benefits plans. In addition, the Company awards performance-
based bonuses to certain employees, including nearly all of its consultants,
project managers and instructors. The Company believes that by linking
employee compensation to the success of the Company, employees are encouraged
to focus on client satisfaction and to seek continuous professional
development.
The Company's success will depend in part on the continued services of its
key employees. As a result, the Company has entered into employment agreements
containing non-competition, non-disclosure and non-solicitation covenants with
all of its management, consultants, project managers and instructors, except
Mr. Paul Y. Song.
37
<PAGE>
FACILITIES
The Company's headquarters is located at 6720 Fort Dent Way, Suite 250,
Seattle, Washington. The Company leases approximately 9,000 square feet in two
buildings in this business complex. The Company and its subsidiaries also
lease facilities in various locations listed in the table below (as of May 26,
1997).
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE NO. OF
LOCATION FOOTAGE CLASSROOMS FUNCTION
-------- ----------- ---------- --------
<C> <C> <C> <S>
Seattle, WA................. 9,000 -- Corporate headquarters,
consulting headquarters
Bellevue, WA................ 15,000 6 Training headquarters
(Seattle area)
Bellevue, WA................ 8,000 5 ARIS Software, Inc.
(Seattle area) headquarters, training
Beaverton, OR............... 7,000 4 Consulting, training,
(Portland area) software
Denver, CO.................. 3,000 2 Consulting, training
Denver, CO.................. 7,000 5 Training
Dallas, TX.................. 7,000 -- Consulting
Fairfax, VA................. 10,500 5 Training, consulting
(Washington, D.C. area)
Tampa, FL................... 2,000 -- Consulting
London, U.K................. 6,500 9 Training
London, U.K................. 1,250 3 Training (not currently
in use)
Oxford, U.K................. 5,000 -- Oxford headquarters
Birmingham, U.K............. 2,500 4 Training
Oxford, U.K................. 4,000 4 Training
</TABLE>
LEGAL PROCEEDINGS
The Company is from time to time involved in legal proceedings that arise
out of the normal course of business. As of May 26, 1997, the Company was not
involved in any material legal proceedings.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company and their
ages as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Paul Y. Song..................... 34 President, Chief Executive Officer and
Chairman of the Board
Kendall W. Kunz.................. 33 Senior Vice President of Western
Operations and Director
John Y. Song..................... 35 Vice President of Eastern Operations
Thomas W. Averill................ 52 Vice President of Finance and Chief
Financial Officer
Jeffrey W. Gilles................ 46 Vice President of Training Business
Development
John J. Griffin.................. 39 Vice President of Sales and Marketing
David W. Melin................... 41 President of ARIS Software, Inc. and
Noetix Corporation
Hugh Simpson-Wells............... 40 Managing Director of Oxford Computer
Group Limited
Norbert W. Sugayan, Jr........... 36 General Counsel and Secretary
Tina J. Song..................... 33 Director of Human Resources and
Information Technology
Bruce R. Kennedy(1)(2)........... 58 Director
Kenneth A. Williams(1)(2)........ 42 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
PAUL Y. SONG, founder of the Company, has been the Company's President,
Chief Executive Officer and Chairman since its incorporation in October 1990.
Mr. Song also serves as Chairman of the Company's subsidiaries, Oxford, ARIS
Software Inc. ("ASI"), and ASI's wholly-owned subsidiary, Noetix. From 1988 to
1990, Mr. Song was employed by Oracle's Consulting division in a number of
capacities. Mr. Song received a B.S. degree in Electrical Engineering from the
General Motors Institute and an M.S. degree in Computer Science from the
Massachusetts Institute of Technology. Paul Y. Song is the husband of Tina J.
Song and the brother of John Y. Song.
KENDALL W. KUNZ was appointed as the Company's Senior Vice President of
Western Operations and a Director in March 1997. Mr. Kunz is responsible for
the Company's consulting and training operations in the Western United States,
including Washington, Oregon, Colorado and Texas. Mr. Kunz served as the
Company's Senior Vice President of Education from October 1996 to March 1997.
From August 1995 to October 1996, Mr. Kunz was the Company's Vice President of
Consulting and from June 1994 to August 1995, Mr. Kunz served as Vice
President of Sales and Marketing. From July 1992 until June 1994, Mr. Kunz
served as the Company's Director of Sales and Marketing. Between June 1988 and
July 1992, Mr. Kunz was employed by Oracle in a number of capacities. Mr. Kunz
received a B.S. degree in Management from Purdue University.
JOHN Y. SONG was appointed as the Company's Vice President of Eastern
Operations in March 1997. Mr. Song is responsible for the Company's consulting
and training operations in the Eastern United States, including the Washington
D.C. area and Florida. Mr. Song served as the Company's Vice President of
Business Development from September 1996 to March 1997.
39
<PAGE>
From March 1996 to August 1996, Mr. Song was the Company's Executive Director
for the Federal and Public Sector and from February 1991 to February 1996, Mr.
Song was Director of Business Development of the Company. Prior to joining the
Company, Mr. Song worked in Hong Kong for Hill and Knowlton, a public
relations firm, and in Seoul, Republic of Korea for Lee and Associates, a
management consulting firm. Mr. Song received a B.A. degree in Journalism from
Western Washington University and an M.B.A. degree from the Graduate School of
International Studies at Yonsei University (Republic of Korea). John Y. Song
is the brother of Paul Y. Song.
THOMAS W. AVERILL has served as Vice President of Finance and Chief
Financial Officer since joining ARIS in July 1996 and is responsible for the
Company's financial and administrative operations. Mr. Averill has also served
as the Chief Financial Officer and a Director of ASI and Noetix since August
1996 and October 1996, respectively, and a Director of Oxford since March
1997. From November 1994 to July 1996, Mr. Averill was self-employed as a
private business and finance consultant. Between November 1992 and November
1995, Mr. Averill also was a Vice President of Finance and a director of Simon
Golub and Sons, Inc., a manufacturer and international wholesale distributor
of personal time pieces and fine jewelry. From 1990 to 1992, Mr. Averill was
an employee of and consultant to Paragon Computer Corp. and was the Vice
President of Finance of Paragon Computer Technology Corp., both of which are
computer systems integration companies.
JEFFREY W. GILLES has served as the Company's Vice President of Training
Business Development since October 1996. Mr. Gilles is responsible for
creating business alliances, developing online training capabilities, and new
product research and development. From January 1995 to October 1996, Mr.
Gilles was Vice President of Education of the Company, responsible for the
Company's training operations. From June 1992 to December 1994, Mr. Gilles was
the President of Clarity. From July 1988 to June 1992, Mr. Gilles was Regional
Education Manager for Oracle. Mr. Gilles received a B.A. degree in
Broadcasting and Film, a B.S. degree in Computer Science and an M.S. degree in
Computer Science from the University of Iowa.
JOHN J. GRIFFIN has served as the Company's Vice President of Sales and
Marketing since July 1996. From 1988 to 1996, Mr. Griffin held various sales
and account management positions at Oracle and, immediately prior to joining
the Company, was Oracle's Global Account Manager for the Boeing Company. Prior
to joining Oracle, Mr. Griffin held technical, management and sales positions
for a number of companies. Mr. Griffin received a B.A. degree in
Organizational Communications from the University of Utah.
DAVID W. MELIN has served as President and a Director of ASI and Noetix
since August 1996 and October 1996, respectively. From 1990 to 1996, Mr. Melin
owned and operated Allied Bolt Co., an industrial fastener distribution and
manufacturing company. Mr. Melin was Product Manager for MS-DOS and Microsoft
LAN Manager at Microsoft from 1984 to 1989. Mr. Melin received a B.A. degree
in Mechanical Engineering from the University of Washington and an M.S. degree
in Engineering Management from Stanford University.
HUGH SIMPSON-WELLS is Managing Director and Secretary of Oxford, the U.K.
subsidiary of the Company, and is responsible for all operations of Oxford.
Mr. Simpson-Wells founded Oxford in 1983. Prior to founding Oxford, Mr.
Simpson-Wells was an engineer with the Ford Motor Company in the United
Kingdom. Mr. Simpson-Wells received an M.S. degree in Engineering Science from
Oxford University.
NORBERT W. SUGAYAN, JR. has served as the Company's General Counsel since
February 1996, its Secretary since April 1997 and as Secretary of ASI and
Noetix since November 1996. Prior to joining the Company on a full-time basis,
Mr. Sugayan practiced law with private law
40
<PAGE>
firms in Seattle, Washington, as of counsel to Lane Powell Spears Lubersky
from February 1996 to December 1996, as a principal of Harris, Sugayan & Hull
from March 1994 to February 1996 and as an attorney with Bogle & Gates from
February 1992 to March 1994. Prior to February 1992, Mr. Sugayan practiced law
in Seoul, Republic of Korea and Dallas, Texas. Mr. Sugayan received a B.A.
degree in Economics and English from the University of Michigan, a J.D. degree
from the University of Notre Dame Law School, and an L.L.M. degree in
Corporations Law from New York University.
TINA J. SONG has served as the Company's Director of Human Resources and
Information Technology since January 1995. Ms. Song was a Vice President of
the Company from October 1990 until March 1996, and was a Director of the
Company from October 1990 until November 1994. From April 1993 to January
1995, Ms. Song was also the Company's Consulting Resource Manager. Ms. Song
received a B.S. degree in Electrical Engineering from the General Motors
Institute. Ms. Song is the wife of Paul Y. Song.
BRUCE R. KENNEDY was appointed as a Director of the Company in March 1997.
Mr. Kennedy is Chairman Emeritus of Alaska Air Group, Inc., a New York Stock
Exchange listed airline holding company. Since 1991, Mr. Kennedy has served as
a Director, and as Chairman of the Executive Committee of the Board, of Alaska
Air Group, Inc. He served as Chairman, Chief Executive Officer and President
of Alaska Air Group, Inc., Chairman, Chief Executive Officer and President of
Alaska Airlines, Inc. and as Chairman of Horizon Air Industries, Inc., a
regional airline, from 1979 to 1991.
KENNETH A. WILLIAMS was appointed as a Director of the Company in March
1997. From 1996 to the present, Mr. Williams has been Vice Chairman and a
director of CUC International, a consumer services company. He is also a
member of the Office of the President of CUC International. Prior to joining
CUC International, Mr. Williams was the Chairman of the Board and Chief
Executive Officer of Sierra On-Line, Inc., a consumer software company which
he co-founded in 1979 and which was acquired by CUC International in 1996.
The Board of Directors of the Company is divided into three classes. One
class is elected at each annual meeting of shareholders, with the members of
each class holding office for a three-year term and until successors of such
class have been elected and qualified. Messrs. Song and Kennedy serve as Class
I directors until the annual meeting of shareholders held in 2000, or until
their respective successors have been elected and qualified. Mr. Williams
serves as a Class II director until the annual meeting of shareholders held in
1999, or until his successor has been elected and qualified. Mr. Kunz serves
as a Class III director until the annual meeting of shareholders held in 1998,
or until his successor has been elected and qualified.
BOARD COMMITTEES
The Board of Directors has created an Audit Committee and a Compensation
Committee. The Audit Committee consists of Mr. Kennedy (Chair) and Mr.
Williams. Among other functions, the Audit Committee makes recommendations to
the Board of Directors regarding the selection of independent auditors,
reviews the results and scope of the audit and other services provided by the
Company's independent auditors, reviews the Company's balance sheet, statement
of operations and cash flows and reviews and evaluates the Company's internal
control functions.
The Compensation Committee consists of Mr. Williams (Chair) and Mr. Kennedy.
The Compensation Committee reviews and approves the compensation and benefits
for the Company's executive officers, administers the Company's stock option
plans and makes recommendations to the Board of Directors regarding the
Company's compensation policies.
41
<PAGE>
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors or members of the committees of the Board of Directors, but are
reimbursed for their reasonable expenses incurred in attending Board and
committee meetings. In addition, each non-employee director is entitled to
receive stock options pursuant to the automatic grant provisions of the
Company's 1997 Stock Option Plan. See "--Stock Option Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Paul Y. Song was the sole director of the Company during 1996 and made
all decisions concerning the compensation of executive officers, including his
own.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information regarding compensation earned by the Company's Chief Executive
Officer and the other executive officers who earned in excess of $100,000 in
salary and bonus during fiscal 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Paul Y. Song..................................... $120,000 $90,553 $3,655(1)
President and Chief Executive Officer
Kendall W. Kunz.................................. 108,000 81,644 1,190(1)
Senior Vice President of Western Operations
Jeffrey W. Gilles................................ 102,000 74,830 --
Vice President of Training Business Development
John Y. Song..................................... 76,000 53,680 3,046(1)
Vice President of Eastern Operations
</TABLE>
- --------
(1) Represents amount paid by the Company for automobile expenses.
STOCK OPTION PLANS
1997 STOCK OPTION PLAN. On March 13, 1997, the Board of Directors adopted
the 1997 Stock Option Plan, which received shareholder approval at the
Company's annual meeting of shareholders held on April 25, 1997. As of May 26,
1997, options to purchase 90,934 shares were outstanding under the 1997 Stock
Option Plan, with a weighted average price of $9.40 per share, none of which
had been exercised. The aggregate number of shares reserved for issuance under
the 1997 Stock Option Plan is two million shares, less the 1,134,091 shares
that have been granted and not subsequently become available for future grant
under the Company's 1995 Stock Option Plan, and subject to certain other
adjustments. The 1997 Stock Option Plan is administered by the Compensation
Committee of the Board of Directors (the "Plan Administrator") and provides
for the grant of options to purchase shares of the Company's Common Stock to
employees, officers and directors of, and consultants to, the Company. Options
granted may be either incentive stock options ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory
stock options ("NSOs"). The recipients of grants, the number of options
granted, and other terms and conditions of options granted under the 1997
Stock Option Plan are to be determined in the discretion of the Plan
Administrator, except that the 1997 Stock Option Plan provides for automatic,
non-discretionary grants of 5,000 NSOs to non-employee directors (as defined
under Rule 16b-3 promulgated pursuant to the Exchange Act) for each year of
service (or portion thereof) on the Board of Directors of the Company.
42
<PAGE>
Under the terms of the 1997 Stock Option Plan, ISOs may be issued only to
employees of the Company or employees of any present or future subsidiary of
the Company. After the date of this Prospectus, the exercise price of ISOs
granted under the 1997 Stock Option Plan may not be less than 100% of the fair
market value of the Common Stock at the time of the grant (or less than 110%
in the case of a holder of 10% or more of the total voting power of the
Company). ISOs will have a maximum term of ten years from the date of grant
(five years in the case of a holder of greater than 10% of the total voting
power of the Company), and will generally vest over a period of four years.
The aggregate fair market value (as determined at the time of grant) of shares
with respect to which ISOs are excercisable for the first time by an optionee
in any one calender year may not exceed $100,000. After the date of this
Prospectus, NSOs granted under the 1997 Stock Option Plan will have an
exercise price of not less than 100% of the fair market value of the Common
Stock at the time of the grant, and will have a maximum term of ten years from
the date of grant. Fair market value of the Common Stock will be determined by
the Plan Administrator. Options granted under the 1997 Stock Option Plan will
not be transferable other than by will or the laws of descent and
distribution, except that NSOs will also be transferable pursuant to a
domestic relations order.
1995 STOCK OPTION PLAN. As of May 26, 1997, options to purchase 1,112,091
shares were outstanding under the Company's 1995 Stock Option Plan, with a
weighted-average exercise price of $4.95 per share, and options to purchase
22,000 shares had been exercised. ISOs granted under the 1995 Stock Option
Plan generally have a maximum term of ten years from the date of grant, and
vest over a period of five years. NSOs granted under the 1995 Stock Option
Plan generally have a maximum term of seven years. Options granted under the
1995 Stock Option Plan are not transferable other than by will or the laws of
descent and distribution. In connection with the adoption of the 1997 Stock
Option Plan in March 1997, the Board of Directors determined that it would not
make any future grants under the 1995 Stock Option Plan.
Prior to January 1995, the Company from time to time granted NSOs to key
employees. These grants were not made pursuant to any formal policy or plan.
EMPLOYMENT AGREEMENTS
Each of the Named Executive Officers except Mr. Paul Y. Song has an
employment agreement with the Company. Mr. Kendall W. Kunz's employment
agreement provides for his employment as an officer of the Company for an
indefinite period, subject to the right of either party to terminate upon 30
days' prior written notice. Mr. John Y. Song's employment agreement provides
for his employment as an officer of the Company for an indefinite period,
subject to the right of either party to terminate upon 14 days' prior written
notice. Mr. Jeffrey W. Gilles' employment agreement provides for his
employment as an officer of the Company through December 31, 1997, subject to
the right of either party to terminate upon prior written notice. Each such
employment agreement other than Mr. Gilles' provides for termination by the
Company for cause effective immediately upon notice to the employee. In
addition, each such employment agreement provides for an annual bonus based
upon the achievement of goals (such as revenue and income) as set annually by
the Board of Directors and also contains other terms customarily found in
executive officer agreements, including provisions relating to the
reimbursement of certain business expenses, participation in employee benefit
plans available to other executive officers and employees of the Company,
confidentiality, non-competition and non-solicitation.
43
<PAGE>
CERTAIN TRANSACTIONS
On January 1, 1995, the Company issued 560,000 shares of Common Stock to
Jeffrey W. Gilles, the Company's Vice President of Training Business
Development, in connection with the Company's acquisition of the capital stock
of Clarity.
On March 31, 1995, the Company issued 120,000 shares of Common Stock to
Kendall W. Kunz, the Company's Senior Vice President of Western Operations and
a Director, in connection with his exercise of options granted in connection
with his employment by the Company.
On April 3, 1995, the Company issued 200,000 shares of Common Stock to
John Y. Song, the Company's Vice President of Eastern Operations, in
connection with his exercise of options granted in connection with his
employment by the Company.
On October 11, 1995, the Company issued 80,000 shares of Common Stock to Mr.
Kunz in connection with his exercise of options granted in connection with his
employment by the Company.
On November 15, 1995, the Company issued 120,000 shares of Common Stock to
Mr. Kunz in connection with his exercise of options granted in connection with
his employment by the Company.
On May 1, 1996, the Company issued 540,254 shares of Common Stock to
Stephen J. Brugger in connection with the Company's acquisition of the capital
stock of SQLSoft.
On February 28, 1997, the Company issued 103,460 shares of Common Stock to
Hugh Simpson-Wells, the Managing Director and Secretary of Oxford, in
connection with the Company's acquisition of the capital stock of Oxford.
On February 28, 1997, the Company repurchased, 100,000 shares of Common
Stock at $9.75 per share from Mr. Gilles, and 30,000 shares of Common Stock at
$9.75 per share from Mr. Brugger, an employee of the Company and beneficial
owner of more than 5% of the Common Stock prior to the closing of this
Offering. The Company repurchased these shares following discussions between
two third parties unaffiliated with the Company and certain shareholders of
the Company regarding the third parties' interest in acquiring an equity stake
in the Company and obtaining a seat on the Board of Directors. The Board of
Directors determined that the repurchase was in the best interests of, and on
terms fair and reasonable to, the Company.
44
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of May 26, 1997 by: (i)
each of the directors and Named Executive Officers of the Company; (ii) each
other person known by the Company to own beneficially more than 5% of the
Common Stock; (iii) each Selling Shareholder; and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING SHARES OFFERING
----------------------- BEING -----------------------
NUMBER PERCENT(1)(2) OFFERED NUMBER PERCENT(1)(2)
--------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS
AND DIRECTORS
Paul Y. Song(3)......... 3,948,000 53.2% -- 3,948,000 41.9%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
Jeffrey W. Gilles....... 460,000 6.2% -- 460,000 4.9%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
Kendall W. Kunz......... 320,000 4.3% -- 320,000 3.4%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
John Y. Song............ 195,500 2.6% -- 195,500 2.1%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
Bruce R. Kennedy........ 12,500 * -- 12,500 *
16430 Ambaum Boulevard
South
Seattle, Washington
98148
Kenneth A. Williams..... -- * -- -- *
8434 North Mercer Way
Mercer Island,
Washington 98040
OTHER 5% SHAREHOLDERS
Tina J. Song(3)......... 1,172,000 15.8% -- 1,172,000 12.4%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
Song Family Ltd.
Partnership............ 650,000 8.8% -- 650,000 6.9%
3700 First Interstate
Center
999 Third Avenue
Seattle, Washington
98104
Stephen J. Brugger(4)... 505,494 6.8% -- 505,494 5.4%
6720 Fort Dent Way,
Suite 250
Seattle, Washington
98188-2555
SELLING SHAREHOLDERS
Ian C.H. Cunningham..... 66,500 * 13,300 52,200 *
Shepherd's Cottage
Oxford OX44 9DB
United Kingdom
Hugh Simpson-Wells...... 103,460 1.4% 7,500 95,960 1.0%
33 Hurst Rise Road
Oxford OX2 9HE
United Kingdom
ALL DIRECTORS AND
EXECUTIVE OFFICERS AS A
GROUP (12 PERSONS)..... 5,633,960 75.9% 7,500 5,626,460 60.0%
</TABLE>
- -------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Common Stock subject to options currently exercisable or
exercisable within 60 days of May 26, 1997 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
option but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Except where indicated, and
subject to community property laws where applicable, the persons in the
table above have sole voting and investment power with respect to all
Common Stock shown as beneficially owned by them.
(3) Includes 650,000 shares registered in the name of Song Family Limited
Partnership, over which Paul Song and Tina Song share voting and
dispositive power.
(4) Includes 2,000 shares registered in the name of Aidan J. Brugger Trust,
40,000 shares registered in the name of Brugger Family Children Trust, and
2,760 shares registered in the name of Aidan J. Brugger, over all of which
Stephen J. Brugger exercises voting and dispositive power.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of 100,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock, without par value (the
"Preferred Stock"). The following summary description of the Company's capital
stock is qualified in its entirety by reference to the Restated Articles and
the Restated Bylaws of the Company, copies of which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
On March 31, 1997, there were 7,423,900 shares of Common Stock outstanding,
held of record by 60 shareholders. Holders of Common Stock are entitled to one
vote per share on all matters submitted to a vote of shareholders. There are
no cumulative voting rights for the election of directors. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to
preferences that may be applicable to any outstanding Preferred Stock. In the
event of the liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All outstanding shares of Common Stock are,
and all shares of Common Stock to be outstanding upon completion of this
Offering will be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Company's Restated Articles, the Company's Board of
Directors has the authority, without further action by the shareholders, to
issue up to 5,000,000 shares of Preferred Stock in one or more series and to
fix designations and powers, preferences and relative rights of such shares,
and to increase or decrease the number of shares of any series subsequent to
the issue of that series, but not below the number of shares of such series
then outstanding. Shares of Preferred Stock which may be redeemed, purchased
or acquired by the Company may be reissued except as otherwise provided by
law. The issuance of Preferred Stock in certain circumstances may delay, deter
or prevent a change in control of the Company, may discourage bids for the
Common Stock at a premium over its market price and may adversely affect the
market price of, and the voting and other rights of the holders of, the Common
Stock. The Company currently has no plans to issue any Preferred Stock.
WARRANT
As of May 26, 1997, there was one warrant outstanding to purchase 4,000
shares of Common Stock at a purchase price of $10.00 per share which was
granted to the Company's counsel for legal services rendered in connection
with this Offering. The warrant is currently exercisable in whole or in part,
at any time and from time to time until February 2002. The warrant contains
certain protections against dilution resulting from stock splits, stock
dividends and similar events. The warrant may be exercised for cash or
pursuant to certain cashless exercise provisions.
REGISTRATION RIGHTS
In connection with the October 1996 purchase of SofTeach, the Company
granted certain registration rights to the former shareholders of SofTeach
(the "SofTeach Shareholders") who hold an aggregate of 42,000 shares of Common
Stock. In connection with the February 1997 acquisition of Oxford, the Company
granted certain "piggy-back" registration rights to the former shareholders of
Oxford (the "Oxford Shareholders") who hold an aggregate of 280,000
46
<PAGE>
shares of Common Stock. At any time and from time to time after the date of
this Prospectus under certain circumstances and limitations, the SofTeach
Shareholders and the Oxford Shareholders may include their shares in any
registration of the Company's Common Stock under the Securities Act on a form
which permits registration of secondary shares, other than a registration
relating solely to employee benefit plans, or a registration relating solely
to a transaction under Rule 145 of the Securities Act, a transaction relating
solely to the sale of debt or convertible debt instruments or a registration
on any form (other than Form S-1, S-2 or S-3, or their successor forms) which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of such shares of
Common Stock. In addition, one of the Oxford Shareholders, Mr. Ian C.H.
Cunningham, has the right to include up to 13,300 shares of Common Stock in
this Offering, and has elected to do so. See "Principal and Selling
Shareholders" and "Shares Eligible for Future Sale."
WASHINGTON ANTI-TAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. In addition,
Chapter 23B.19 of the WBCA prohibits a corporation, with certain exceptions,
from engaging in certain significant business transactions with an "Acquiring
Person" (defined as a person who acquires 10% or more of the corporation's
voting securities without the prior approval of the corporation's board of
directors) for a period of five years after such acquisition. The prohibited
transactions include, among others, a merger with, disposition of assets to,
or issuance or redemption of stock to or from, the Acquiring Person, or
allowing the Acquiring Person to receive any disproportionate benefit as a
shareholder. An Acquiring Person is further prohibited from engaging in
significant business transactions with the target corporation unless the per
share consideration paid to holders of outstanding shares of Common Stock and
other classes of stock of the target corporation meet certain minimum
criteria; provided, however, pursuant to recent legislative revisions
effective July 27, 1997, the per share minimum criteria referenced above apply
only to significant business transactions involving either (i) a merger, share
exchange, or consolidation of a target corporation with an Acquiring Person or
an affiliate or associate of the Acquiring Person, or (ii) the liquidation or
dissolution of a target corporation proposed by, or pursuant to an agreement,
arrangement, or understanding with an Acquiring Person or an affiliate or
associate of an Acquiring Person, which transaction is not otherwise approved
by an affirmative vote of a majority of the disinterested shareholders of the
target corporation. These provisions may have the effect of delaying,
deterring or preventing a change in control of the Company.
CERTAIN PROVISIONS IN RESTATED ARTICLES AND RESTATED BYLAWS
Pursuant to the Company's Restated Articles, the Board of Directors of the
Company is divided into three classes, as nearly equal in number as possible.
One class is elected at each annual meeting of the shareholders, with the
members of each class holding office for a three-year term or until successors
of such class have been elected and qualified. The Company's Restated Bylaws
provide that: (i) the Board of Directors consists of seven persons or so many
as may from time to time be designated by the then-existing Board of
Directors: (ii) vacancies in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors in office though
less than a quorum of the Board of Directors; (iii) the entire Board of
Directors, or any member thereof, may be removed only by the affirmative vote
of at least two-thirds of shares then present and entitled to vote at an
election of such directors at a special meeting of shareholders called
expressly for that purpose; and (iv) director nominations not made in
accordance with certain notice provisions may, at the discretion of the
Chairman of the Board, be disregarded. It is possible that the provisions
discussed above may delay, deter or prevent a change in control of the
Company.
47
<PAGE>
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Restated Articles provide that no director shall be personally liable to
the Company or its shareholders for monetary damages for conduct as a
director, excluding, however, liability for acts or omissions involving
intentional misconduct or knowing violations of law, illegal distributions or
transactions from which the director receives benefits to which the director
is not legally entitled. In addition, the Restated Bylaws provide for broad
indemnification by the Company of its officers and directors in accordance
with Washington law. Insofar as the indemnity for liabilities arising under
the Securities Act may be permitted to directors or officers of the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, 520 Pike Street, Suite 1220, Seattle, Washington 98101.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 9,423,900 shares of
Common Stock outstanding, assuming no exercise of the over-allotment option
and no exercise of outstanding options and warrants. All of the 2,020,800
shares of Common Stock sold in this Offering are freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by affiliates of the Company ("Affiliates") (as defined in
Rule 144 under the Securities Act). The 7,423,900 shares of Common Stock
outstanding prior to this Offering were issued and sold without registration
under the Securities Act and public sale thereof in the United States will be
restricted except to the extent such shares are registered under the
Securities Act or sold in accordance with an applicable exemption from
registration. Of the 7,423,900 shares of Common Stock outstanding prior to
this Offering, 280,000 shares were issued to persons whom the Company believed
to be outside the United States at the time of issuance (the "Non-United
States Shares"), and thus are subject to the restrictions imposed on the
resale of such shares pursuant to Regulation S. The remaining 7,143,900 shares
were issued to persons in the United States in transactions exempt from
registration pursuant to the Securities Act. A total of 20,800 of the Non-
United States Shares are being sold pursuant to this Offering. Pursuant to
Regulation S, the remaining 259,200 Non-United States Shares may, under
certain circumstances, be resold in the United States by persons other than
Affiliates without registration under the Securities Act, immediately after
the date of this Prospectus, subject to the Lock-up Agreements.
A total of 7,327,920 shares of Common Stock held by existing shareholders
are subject to the Lock-up Agreements with Deutsche Morgan Grenfell Inc. and
may not be offered or sold or otherwise transferred until 180 days following
the closing of this Offering. Taking into account restrictions imposed by the
Securities Act, rules promulgated by the Commission thereunder and the Lock-up
Agreements, the number of additional shares that will be available for sale in
the public market, subject in some cases to the volume and other restrictions
of Rule 144 under the Securities Act, will be as follows: 6,528,160 shares
will be eligible for sale beginning 180 days after the closing of this
Offering, and 855,020 shares will be eligible for sale pursuant to Rule 144
upon the expiration of applicable holding periods, which will expire between
November 1, 1997 and March 10, 1999. Deutsche Morgan Grenfell Inc. may, in its
sole discretion and at any time without notice, release all or any portion of
the shares subject to the Lock-up Agreements. Upon the closing of this
Offering, holders of 301,200 shares of Common Stock are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. In addition, the Company intends to file a registration statement on Form
S-8 under the Securities Act approximately 180 days after the closing of this
Offering to register approximately 1,978,000 shares of Common Stock reserved
for issuance under the Company's 1995 Stock Option Plan and 1997 Stock Option
Plan. In addition, up to 4,000 shares of Common Stock issuable upon exercise
of an outstanding warrant will become available for sale in the public market
following the expiration of the Rule 144 holding period on February 24, 1998,
if exercised pursuant to cashless exercise provisions, or one year following
the exercise of the warrant for cash.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated under Rule 144), including an Affiliate, who has
beneficially owned restricted securities for a period of at least one year
from the later of the date such restricted securities were acquired from the
Company or the date on which they were acquired from an Affiliate, is entitled
to sell, within any three-month period commencing 90 days after the date of
this Prospectus, a number of shares that does not exceed the greater of 1.0%
of the then outstanding shares of Common Stock (approximately 94,239 shares
immediately after this Offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain other provisions
49
<PAGE>
relating to notice of sale and the availability of current public information
about the Company. However, under Rule 144(k), if a period of at least two
years has elapsed between the later of the date the restricted securities were
acquired from the Company or the date on which they were acquired from an
Affiliate of the Company, a holder of such restricted securities, who is not
an Affiliate at the time of the sale and has not been an Affiliate for at
least three months prior to the sale, would be entitled to sell the shares
immediately, without regard to the availability of public information about
the Company, volume, manner of sale and notice limitations described above.
Prior to this Offering, there has been no public market for the Common
Stock, and any sale of substantial amounts of the Common Stock in the open
market, or the availability of shares for sale, may adversely affect the
market price of the Common Stock and the ability of the Company to raise funds
through equity offerings in the future.
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Deutsche Morgan
Grenfell Inc., Montgomery Securities and Piper Jaffray Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the underwriting agreement (the form of which will be
filed as an exhibit to the Company's Registration Statement of which this
Prospectus is a part) (the "Underwriting Agreement"), to purchase from the
Company and the Selling Shareholders the number of shares of Common Stock set
forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Deutsche Morgan Grenfell Inc....................................
Montgomery Securities...........................................
Piper Jaffray Inc...............................................
---------
Total....................................................... 2,020,800
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including approval of certain
matters by counsel, and that the Underwriters will purchase all shares of
Common Stock offered hereby if any such shares are purchased.
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus.
The Underwriters may allow selected dealers a concession of not more than $
per share. The selected dealers may reallow a concession of not more than $
to certain other dealers. The Common Stock is offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or in part. After the Offering, the price,
concessions and re-allowances to dealers and other selling terms may be
changed by the Representatives. The Underwriters do not intend to sell any of
the shares of Common Stock offered hereby to accounts for which they exercise
discretionary authority.
The Company has granted an option to the Underwriters to purchase up to
300,000 additional shares of Common Stock at the initial public offering
price, less underwriting discounts, to cover over-allotments, if any. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment, subject to
certain
50
<PAGE>
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table, and the Company will be obligated
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in the Offering, if any.
The Underwriters may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under the Exchange Act. Rule 104
permits stabilizing bids to purchase the underlying security so long as bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing and
syndicate covering transactions may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
In connection with the Offering, the Company, the officers and directors of
the Company, and certain other shareholders of the Company have agreed not to
offer or sell or otherwise transfer any Common Stock until the expiration of
180 days following the closing of this Offering without the prior written
consent of Deutsche Morgan Grenfell Inc.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the several Underwriters and their controlling
persons against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between
the Company and the Representatives. The principal factors to be considered in
determining the public offering price include the information set forth in
this Prospectus and otherwise available to the Representatives, the history
and the prospects for the industry in which the Company competes, the ability
of the Company's management, the prospects for future earnings of the Company,
the present state of the Company's development and its current financial
condition, the general condition of the securities markets at the time of the
Offering, and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies. Each of the Representatives
has informed the Company that it currently intends to make a market in the
shares subsequent to the effectiveness of the Offering, but there can be no
assurance that the Representatives will take any action to make a market in
any securities of the Company.
51
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the legality of the Common Stock offered
by this Prospectus will be passed upon for the Company and the Selling
Shareholders by Van Valkenberg Furber Law Group P.L.L.C., Seattle, Washington.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Stoel Rives LLP, Seattle, Washington.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31,
1996, and the financial statements of SofTeach for the nine-month period ended
September 30, 1996 included in this Prospectus have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of which
this Prospectus constitutes a part, under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information
with respect to the Company and the Common Stock offered hereby. Statements
contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits filed therewith, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. Information
concerning the Company is also available for inspection at the offices of the
Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARIS CORPORATION
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet................................................ F-3
Consolidated Statement of Income.......................................... F-4
Consolidated Statement of Changes in Shareholders' Equity................. F-5
Consolidated Statement of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
SOFTEACH CORPORATION
Report of Independent Accountants......................................... F-20
Statement of Income....................................................... F-21
Statement of Changes in Shareholders' Equity.............................. F-22
Statement of Cash Flows................................................... F-23
Notes to Financial Statements............................................. F-24
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Balance Sheet................................ F-27
Unaudited Pro Forma Combined Statement of Income.......................... F-28
Notes to Unaudited Pro Forma Combined Balance Sheet and Statement of
Income................................................................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
ARIS Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
ARIS Corporation and its subsidiaries at December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Seattle, Washington
March 21, 1997
F-2
<PAGE>
ARIS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- -----------
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $1,241 $ 177 $ 485
Investments in marketable securities.......... 1,250 1,396 1,372
Accounts receivable, net of allowance for
doubtful accounts of $279, $300 and $350
(unaudited).................................. 2,738 5,169 8,612
Consulting contracts in progress.............. 20 428 442
Income tax receivable......................... -- 186 --
Prepaid expenses and other assets............. 311 438 1,397
------ ------- -------
Total current assets........................ 5,560 7,794 12,308
Property and equipment, net..................... 1,202 2,517 4,083
Intangible and other assets, net................ 81 2,645 3,431
------ ------- -------
Total assets................................ $6,843 $12,956 $19,822
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 150 $ 787 $ 2,248
Accrued payroll............................... 300 902 1,073
Other accrued expenses........................ 160 294 1,682
Notes payable................................. -- 1,500 5,887
Deferred revenue.............................. 238 199 774
Income taxes payable.......................... 383 -- 578
Deferred income taxes......................... 303 351 315
------ ------- -------
Total current liabilities................... 1,534 4,033 12,557
------ ------- -------
Deferred income taxes........................... 667 713 650
------ ------- -------
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized.. -- -- --
Common stock, no par value; 10,000,000 shares
authorized................................... 419 1,943 3,224
Retained earnings............................. 4,028 6,042 3,180
Net unrealized holding gain on investments.... 195 225 209
Cumulative foreign currency translation
adjustment................................... -- -- 2
------ ------- -------
Total shareholders' equity.................. 4,642 8,210 6,615
------ ------- -------
Total liabilities and shareholders' equity.. $6,843 $12,956 $19,822
====== ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Consulting............ $ 6,132 $ 9,725 $ 16,312 $ 2,543 $ 6,633
Training.............. 551 4,821 9,385 1,778 3,243
Software.............. 369 205 1,201 106 533
---------- ---------- ---------- ---------- ----------
Total revenue....... 7,052 14,751 26,898 4,427 10,409
---------- ---------- ---------- ---------- ----------
Cost of sales:
Consulting and
training............. 3,637 7,176 13,353 2,177 4,901
Software.............. 47 42 93 4 48
---------- ---------- ---------- ---------- ----------
Total cost of sales. 3,684 7,218 13,446 2,181 4,949
---------- ---------- ---------- ---------- ----------
Gross profit........ 3,368 7,533 13,452 2,246 5,460
Operating expenses:
Selling, general and
administrative....... 2,077 4,552 10,206 1,445 3,751
---------- ---------- ---------- ---------- ----------
Income from
operations......... 1,291 2,981 3,246 801 1,709
---------- ---------- ---------- ---------- ----------
Other income (expense):
Investment income..... 15 57 89 -- --
Interest income
(expense), net....... (4) 18 35 2 (42)
Other income
(expense)............ -- 40 (9) -- --
---------- ---------- ---------- ---------- ----------
11 115 115 2 (42)
---------- ---------- ---------- ---------- ----------
Income before income
tax................ 1,302 3,096 3,361 803 1,667
Income tax expense...... 476 1,086 1,347 297 623
---------- ---------- ---------- ---------- ----------
Net income.............. $ 826 $ 2,010 $ 2,014 $ 506 $ 1,044
========== ========== ========== ========== ==========
Net income per share.... $ 0.12 $ 0.24 $ 0.23 $ 0.06 $ 0.12
========== ========== ========== ========== ==========
Weighted average number
of common and common
equivalent shares
outstanding............ 6,675,570 8,487,011 8,581,572 8,573,546 8,512,537
========== ========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NET CUMULATIVE
UNREALIZED FOREIGN
HOLDING CURRENCY TOTAL
SHARES RETAINED GAIN ON TRANSLATION SHAREHOLDERS'
ISSUED AMOUNT EARNINGS INVESTMENTS ADJUSTMENT EQUITY
--------- ------ -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 4,200,000 $ 14 $ 1,192 $ 80 $ 1,286
Net income.............. 826 826
Unrealized holding gain
on investments......... 4 4
--------- ------ ------- ---- --- -------
Balance at December 31,
1994................... 4,200,000 14 2,018 84 2,116
Shares issued in
acquisition............ 1,400,000 263 263
Stock options exercised. 1,191,000 64 64
Tax benefit related to
stock options
exercised.............. 78 78
Net income.............. 2,010 2,010
Unrealized holding gain
on investments......... 111 111
--------- ------ ------- ---- --- -------
Balance at December 31,
1995................... 6,791,000 419 4,028 195 4,642
Shares issued in
acquisitions........... 790,900 1,614 1,614
Stock redemption........ (40,000) (100) (100)
Stock options exercised. 14,000 2 2
Tax benefit related to
stock options
exercised.............. 8 8
Net income.............. 2,014 2,014
Unrealized holding gain
on investments......... 30 30
--------- ------ ------- ---- --- -------
Balance at December 31,
1996................... 7,555,900 1,943 6,042 225 8,210
Shares issued in
acquisitions
(unaudited)............ 280,000 1,400 1,400
Stock redemption
(unaudited)............ (415,000) (121) (3,906) (4,027)
Stock options exercised
(unaudited)............ 3,000 2 2
Unrealized holding loss
on investments
(unaudited)............ (16) (16)
Foreign currency
translation adjustment
(unaudited)............ $ 2 2
Net income (unaudited).. 1,044 1,044
--------- ------ ------- ---- --- -------
Balance at March 31,
1997 (unaudited)....... 7,423,900 $3,224 $ 3,180 $209 $ 2 $ 6,615
========= ====== ======= ==== === =======
</TABLE>
Common stock shares reflect a two-for-one split effective August 29, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.................. $ 826 $ 2,010 $ 2,014 $ 506 $ 1,044
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............. 69 201 661 76 320
(Gain) loss on sale of
property and equipment... -- (18) 6 -- --
Loss on sale of
investments.............. 9 -- -- -- --
Purchased research and
development.............. -- -- 307 -- --
Changes in assets and
liabilities net of
effects of acquisitions:
(Increase) decrease in
accounts receivable.... (1,147) (484) (1,548) 314 (2,303)
(Increase) decrease in
consulting contracts in
progress............... (69) (49) (408) (90) 12
(Increase) decrease in
income tax receivable.. -- -- (186) -- 186
(Increase) decrease in
prepaid expenses and
other assets .......... (35) (36) (21) 9 (561)
Increase (decrease) in
accounts payable....... 222 (178) 140 322 542
Increase in accrued
expenses............... 282 116 704 185 805
Increase (decrease) in
deferred revenue....... -- 124 (363) (8) 131
Increase (decrease) in
income taxes payable... 55 320 (383) (97) 464
Increase (decrease) in
deferred income taxes.. 265 196 (217) (38) (99)
------- ------- ------- ------ -------
Net cash provided by
operating activities... 477 2,202 706 1,179 541
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of investments
in marketable securities. (368) (381) (462) -- --
Sales of investments in
marketable securities.... 306 -- 362 (4) 8
Purchase of property and
equipment................ (220) (911) (1,196) (220) (475)
Acquisition of businesses,
net of cash acquired..... -- (112) (1,427) -- (93)
Proceeds from sale of
property and equipment... -- 27 43 -- --
------- ------- ------- ------ -------
Net cash used in
investing activities... (282) (1,377) (2,680) (224) (560)
------- ------- ------- ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Stock options exercised... -- 64 2 -- 2
Repurchase of common
stock.................... -- -- (100) -- (4,027)
Tax benefit related to
stock options exercised.. -- 78 8 --
Payments on notes payable. -- -- (500) -- (2,100)
Proceeds from notes
payable.................. -- -- 1,500 -- 6,450
------- ------- ------- ------ -------
Net cash provided by
financing activities... -- 142 910 -- 325
------- ------- ------- ------ -------
Net increase (decrease) in
cash and cash equivalents.. 195 967 (1,064) 955 306
Effect of exchange rate
changes on cash and cash
equivalents................ -- -- -- -- 2
Cash and cash equivalents at
beginning of period........ 79 274 1,241 1,241 177
------- ------- ------- ------ -------
Cash and cash equivalents at
end of period.............. $ 274 $ 1,241 $ 177 $2,196 $ 485
======= ======= ======= ====== =======
</TABLE>
See Note 12 for supplemental cash flow information.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
ARIS Corporation (the Company) provides information technology consulting
and training services with offices in Seattle and Bellevue, Washington;
Beaverton, Oregon; Denver, Colorado; Dallas, Texas; Fairfax, Virginia; Tampa,
Florida; and Redding, England. The Company also develops software programs
which it has licensed in the United States and Europe.
The Company has qualified as a minority-owned enterprise under the Section
8(a) Program administered by the U.S. Small Business Administration. To
maintain qualification in this program, the Company must meet certain on-going
financial and reporting requirements. Total Section 8(a) sales were $261,
$2,051 and $2,430 during 1994, 1995 and 1996, respectively. The Company ceased
to qualify under Section 8(a) subsequent to December 31, 1996.
The Company utilizes the significant accounting policies summarized below in
preparing its consolidated financial statements.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with an original
maturity of three months or less.
INVESTMENT SECURITIES
The Company's investment securities at December 31, 1996 are classified as
available-for-sale and are recorded at fair value. Fair value is based upon
quoted market prices. The increase or decrease in market value from period to
period relating to available-for-sale marketable securities, net of deferred
income tax, is included as a separate component of shareholders' equity. The
Company held both available-for-sale and held-to-maturity marketable
securities at December 31, 1995. Held-to-maturity securities are recorded at
amortized cost in the accompanying consolidated financial statements. Cost of
securities sold is determined using the specific identification method.
F-7
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to income as incurred. Additions, improvements and major
replacements are capitalized. For financial reporting purposes, depreciation
is provided using the straight-line method over the estimated useful lives of
depreciable assets. Estimated useful lives of property and equipment range
from three to ten years.
INTANGIBLE ASSETS
Intangible assets represent the cost of business acquisitions allocated to
capitalized software development costs, non-compete agreements and goodwill
which are amortized over approximately three years for capitalized software
development costs, approximately two years for non-compete agreements and
fifteen years for goodwill. Capitalized software development cost amortization
is computed as described below while the straight-line method is used for
other intangible assets.
The carrying value of intangible assets is assessed for any permanent
impairment by evaluating the operating performance and future undiscounted
cash flows of the underlying assets. Adjustments are made if the sum of the
expected future net cash flows is less than book value in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in conjunction with product development
are charged to product development expense until technological feasibility is
established. Thereafter, through general release of product, all software
product development costs are capitalized and reported at the lower of
unamortized cost or net realizable value of each product. The establishment of
technological feasibility and the on-going assessment of the recoverability of
costs require considerable judgment by the Company with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic life and changes in the software and
hardware technology. After consideration of the above factors, the Company
amortizes capitalized software costs at the greater of the amount computed
using (a) the ratio of current revenues for a product to the total of current
and anticipated future revenues, or (b) the straight-line method over the
remaining estimated economic life of the product. Capitalized software
development costs are included in intangible and other assets in the
accompanying consolidated balance sheet.
RESEARCH AND DEVELOPMENT
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The costs of business acquisitions allocated to in-
process research and development is expensed immediately. Included in selling,
general and administrative expenses are research and development expenses of
none, none and $171, respectively for the three years ended December 31, 1996.
F-8
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
REVENUE RECOGNITION
Time and material consulting contracts
The Company recognizes revenue as services are rendered.
Fixed-price consulting contracts
Revenue from fixed-price contracts is recognized on the percentage-of-
completion method, measured by the cost incurred to date to estimated total
costs for the contract. This method is used because management considers
expended costs to be the best available measure of contract performance.
Contract costs include all direct labor, material and any other costs related
to contract performance. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period
in which the revisions are determined. Consulting contracts in progress in the
accompanying consolidated financial statements represent the excess of revenue
earned on fixed-price consulting contracts over amounts billed to customers.
Education and training
Tuition revenue is recognized on the last day the class is held. Tuition
received prior to the classes being held is deferred and included as deferred
revenue in the accompanying consolidated balance sheet.
Software
The Company accounts for software revenue in accordance with the American
Institute of Certified Public Accountants' Statement of Position 91-1,
Software Revenue Recognition. Revenue earned under software license agreements
with end users is generally recognized when the software has been shipped,
collectibility is probable, and there are no significant obligations
remaining.
INCOME TAXES
Provision for income taxes has been recorded in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method of SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to be
recovered or settled.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expenses amounted to
$38, $95 and $80 in 1994, 1995 and 1996, respectively.
F-9
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents and other current assets
and liabilities such as accounts receivable, accounts payable and accrued
liabilities as presented in the consolidated financial statements approximates
fair value based on the short-term nature of these instruments. The recorded
amount of long-term debt approximates fair value as the actual interest rates
approximate current competitive rates. Investments in marketable securities
are carried at fair value in the accompanying consolidated balance sheet.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which was effective for
the Company beginning in 1996. Under the provisions of this Statement,
employee stock-based compensation expense is measured using either the
intrinsic-value method as prescribed by Accounting Principles Board Opinion
No. 25 or the fair value method described in Statement No. 123. Companies
choosing the intrinsic-value method are required to disclose the pro forma
impact of the fair value method on net income and net income per share. The
Company has elected to continue accounting for its employee stock-based
compensation under the provisions of Accounting Principles Board Opinion No.
25. The Company is required to implement Statement No. 123 for stock-based
awards to other than employees; however, the impact on the Company's financial
position at December 31, 1996 and results of operations for the year then
ended is immaterial.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the periods,
computed using the treasury stock method for stock options. In accordance with
Staff Accounting Bulletin Number 83 of the Securities and Exchange Commission,
stock options granted and stock issued at prices below the proposed initial
public offering price and issued during the twelve-month period immediately
preceding the initial public offering, have been considered outstanding for
all periods using the treasury stock method and the estimated initial public
offering price. Fully diluted earnings per share do not differ materially from
primary earnings per share.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The information presented as of March 31, 1997 and for the quarters ended
March 31, 1997 and 1996 has not been audited. In the opinion of management,
the unaudited interim consolidated balance sheet, statements of income, of
changes in shareholders' equity and of cash flows include all adjustments
consisting solely of normal recurring adjustments necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows as of and for the periods indicated.
F-10
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. ACQUISITIONS
The Company has embarked upon an acquisition program which included the
acquisition of one company during 1995, and three companies during 1996. All
of these acquisitions have been accounted for by the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on management's estimates, arms-length
negotiations with the sellers and in some cases, independent appraisals.
Legal, accounting and other direct costs of these acquisitions were
immaterial. The common stock issued as consideration in these acquisitions has
been recorded at its estimated fair value at the date the acquisition was
announced. The results of operations of the acquired companies have been
included in consolidated results of operations of the Company from the date of
the acquisitions. The following is a description of the terms of the various
acquisitions:
1995
On January 1, 1995, the Company acquired the stock of Clarity, Inc., a
training company based in Bellevue, Washington in exchange for 1,400,000
shares of the Company's common stock and cash.
A summary of the purchase price paid is as follows:
<TABLE>
<S> <C>
Consideration:
Cash................................................................. $117
Value of common stock................................................ 263
----
$380
====
</TABLE>
The cost allocated to Clarity Inc.'s assets and liabilities at the date of
the acquisition, as determined in accordance with the purchase method of
accounting, is presented in the table below.
<TABLE>
<S> <C>
Cash............................................................... $ 5
Accounts receivable................................................ 300
Prepaid and other current assets................................... 76
Goodwill........................................................... 64
Property and equipment............................................. 185
Accounts payable and accrued liabilities........................... (250)
-----
$ 380
=====
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if Clarity, Inc. had been acquired as of
January 1, 1994, including the impact of certain adjustments.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Revenue...................................................... $9,383
Net income................................................... $1,088
Net income per share......................................... $ 0.14
</TABLE>
F-11
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the year presented. In
addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
1996
On May 1, 1996, the Company acquired the stock of SQLSoft, Inc., a training
company based in Bellevue, Washington in exchange for 707,900 shares of the
Company's common stock.
On October 1, 1996, the Company acquired the assets and liabilities of
SofTeach Corporation, a training company based in Denver, Colorado in exchange
for 42,000 shares of the Company's common stock and a combination of notes
payable and cash.
On October 1, 1996, the Company acquired the stock of Noetix Corporation, a
software development company which develops software modules which interface
with Oracle Financials software in exchange for 40,000 shares of the Company's
common stock and cash.
A summary of the purchase price paid for the 1996 acquisitions is as
follows:
<TABLE>
<CAPTION>
SQLSOFT, SOFTEACH NOETIX
INC. CORP. CORP.
-------- -------- ------
<S> <C> <C> <C>
Consideration:
Cash.............................................. $ 750 $ 835
Note payable...................................... 500
Value of common stock............................. $1,317 152 145
Acquisition costs................................. 26
------ ------ ------
$1,317 $1,402 $1,006
====== ====== ======
</TABLE>
The cost preliminarily allocated to the assets and liabilities at the date
of the acquisition, as determined in accordance with the purchase method of
accounting for these acquisitions, is presented in the table below.
<TABLE>
<CAPTION>
SQLSOFT, SOFTEACH NOETIX
INC. CORP. CORP.
-------- -------- ------
<S> <C> <C> <C>
Cash............................................. $ 60 $ 124
Accounts receivable.............................. 537 73 $ 273
Prepaid and other current assets................. 73 35
Intangible assets:
Software technology--completed................. 384
Software technology--in progress............... 307
(Charged to research and development expense)
Non-compete agreements......................... 150
Goodwill....................................... 942 956 260
Property and equipment........................... 464 226 9
Accounts payable and accrued liabilities......... (759) (12) (377)
------ ------ ------
$1,317 $1,402 $1,006
====== ====== ======
</TABLE>
F-12
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if SQLSoft, Inc., SofTeach Corporation and
Noetix Corporation had been acquired as of the beginning of the periods
presented, including the impact of certain adjustments.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Revenue................................................... $21,003 $30,306
Net income................................................ $ 2,220 $ 2,139
Net income per share...................................... $ 0.27 $ 0.25
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the years presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Computer equipment........................................... $1,125 $2,528
Furniture and fixtures....................................... 244 503
Software..................................................... 109 157
Other........................................................ 83 166
------ ------
1,561 3,354
Less: Accumulated depreciation............................... (359) (837)
------ ------
$1,202 $2,517
====== ======
</TABLE>
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
----- ------
<S> <C> <C>
Goodwill...................................................... $ 64 $2,221
Capitalized software costs.................................... 58 430
Non-compete agreements........................................ 150
Prepaids and other............................................ 274 404
----- ------
396 3,205
Less: Accumulated amortization................................ (4) (122)
----- ------
392 3,083
Less: Current portion......................................... (311) (438)
----- ------
Total noncurrent intangibles and other assets................. $ 81 $2,645
===== ======
</TABLE>
F-13
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. INVESTMENTS
Investments in marketable securities at December 31, 1996 consist of equity
fund investments totaling $1,396. This investment has been classified as
available-for-sale and, accordingly, the excess of fair value over cost, net
of tax, of $225 has been included as a separate component of shareholders'
equity at December 31, 1996. Investments in marketable securities at December
31, 1995 consist of $362 classified as held-to-maturity and $888 classified as
available-for-sale securities. The held-to-maturity securities are carried at
amortized cost and the excess of fair value over cost, net of tax, of $195
related to the available-for-sale securities has been included as a separate
component of shareholders' equity at December 31, 1995.
6. MAJOR CUSTOMERS
During 1994, 1995 and 1996, the Company had consulting sales to one customer
that aggregated 20%, 22% and 9%, respectively, of total revenue. Accounts
receivable related to this customer were 22% and 7% of total accounts
receivable at December 31, 1995 and 1996, respectively.
7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $135 $ 763 $1,429
State.................................................. 14 40 110
---- ------ ------
149 803 1,539
---- ------ ------
Deferred:
Federal................................................ 305 264 (204)
State.................................................. 22 19 12
---- ------ ------
327 283 (192)
---- ------ ------
Total tax expense........................................ $476 $1,086 $1,347
==== ====== ======
</TABLE>
The principal reasons for the variation from the customary relationship
between income taxes at the statutory federal rate and that shown in the
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate....................... $ 443 $1,053 $1,143
Goodwill................................................ -- 1 17
State income taxes, net of federal income tax benefit... 24 39 80
Purchased research and development...................... -- -- 104
Other................................................... 9 (7) 3
----- ------ ------
$ 476 $1,086 $1,347
===== ====== ======
</TABLE>
F-14
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1995 1996
---- ------
<S> <C> <C>
Adjustments to cash basis accounting for tax purposes........... $782 $ 672
Depreciation and amortization................................... 81 333
Unrealized gain on marketable securities........................ 107 124
Other........................................................... -- 1
---- ------
Gross deferred tax liabilities................................ 970 1,130
---- ------
Bad debt allowance.............................................. -- 8
Accrued vacation and bonuses.................................... -- 39
Research and development credit................................. -- 19
---- ------
Gross deferred tax assets..................................... -- 66
---- ------
$970 $1,064
==== ======
</TABLE>
8. DEBT
At December 31, 1996 the Company had borrowings of $1,000 outstanding on a
$3,000 line of credit. Interest on this line bears interest at the prime rate
(8.25% at December 31, 1996). This revolving line of credit was replaced on
March 14, 1997 with a $8,000 line of credit which is collateralized by all of
the Company's assets. Both the $3,000 and $8,000 lines of credit include
various affirmative and negative covenants which require, among other things,
maintenance of a certain level of working capital and a certain current ratio.
(See Note 14).
The Company has a note payable of $500 in connection with the acquisition of
SofTeach Corporation (Note 2). The note bears interest at 6% and matures in
installments of $250 on April 1, 1997 and July 1, 1997. This note is secured
by the assets acquired in the SofTeach acquisition.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company rents all its office space under non-cancelable operating leases
with initial terms in excess of one year. Future minimum rental commitments
under operating leases for years ending December 31 are as follows:
<TABLE>
<S> <C>
1997.................................................................. $1,152
1998.................................................................. 806
1999.................................................................. 625
2000.................................................................. 546
2001.................................................................. 213
Thereafter............................................................ --
------
$3,342
======
</TABLE>
Rent expense for 1994, 1995 and 1996 was $65, $253 and $702, respectively.
F-15
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings that have arisen in the
normal course of business. Based on the advice of legal counsel, management
does not anticipate that these matters will have a material effect on the
Company's consolidated financial position or results of operations.
10. STOCK OPTIONS
Prior to January 1995, the Company from time to time granted non-qualified
stock options to key employees. These grants were not made pursuant to any
formal policy or plan.
In January 1995, the Company adopted the ARIS Corporation 1995 Stock Option
Plan (the 1995 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and certain non-
employees of the Company as determined by the Plan Administrator. The Company
authorized 1,600,000 shares of its common stock for issuance under the 1995
Plan. The date of grant, option price, vesting period and other terms specific
to options granted under the 1995 Plan are to be determined by the Plan
Administrator. The option price for stock options granted is based on the fair
market value of the Company's stock on the date of grant. Options granted
under the 1995 Plan expire seven years from the date of grant and vest over
periods of up to four years. The Company ended grants under the 1995 Plan in
March 1997.
In March 1997, the Company adopted the ARIS Corporation 1997 Stock Option
Plan (the 1997 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and non-employee
directors of the Company as determined by the Plan Administrator. The Company
authorized 2,000,000 shares of its common stock for issuance under the 1997
Plan, subject to certain adjustments, less that number of shares that have
been granted and have not subsequently become available for grant under the
1995 Plan. The 1997 Plan provides for automatic, non-discretionary grants of
5,000 non-qualified stock options to non-employee directors for each year of
service of the Company's non-employee directors. For all other grants under
the 1997 Plan, the date of grant, option price, vesting period and other terms
specific to options granted under the 1997 Plan are to be determined by the
Plan Administrator. The option price for stock options granted is based on the
fair market value of the Company's stock on the date of grant. Options granted
under the 1997 Plan expire ten years from the date of grant and vest over
periods of up to four years.
F-16
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the activity for qualified and non-qualified stock options
granted prior to 1995 and under the 1995 Stock Option Plan is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------- --------------------- ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 946,000 $0.03 1,205,000 $0.05 134,000 $0.30
Granted................. 259,000 0.13 120,000 0.34 262,000 2.79
Exercised............... -- -- (1,191,000) 0.05 (14,000) 0.09
Forfeited............... -- -- -- (28,300) 0.78
Outstanding at end of
year................... 1,205,000 0.05 134,000 0.30 353,700 2.12
Options exercisable at
year-end............... 939,000 0.04 111,000 0.29 117,598 0.67
Weighted-average fair
value of options
granted during the
year................... -- 0.08 0.50
</TABLE>
The following table summarizes information about stock options outstanding
under the Plans at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.19-$9 353,700 6.1 years $2.12 117,598 $0.67
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
stock options issued to employees. Had compensation cost for the Plans been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, the Company's net income would
have decreased by approximately $2 and $21, respectively, in 1995 and 1996
(unaudited). The fair value of the options granted was calculated using an
option-pricing model with the following assumptions: dividend yield of zero
percent, volatility of zero percent, risk free interest rate ranging from
5.36% to 7.05%, and an expected life of 4.75 years.
11. PROFIT SHARING PLAN
The Company maintains a qualified defined contribution profit sharing 401(k)
plan which covers full time employees with one year of service. Contributions
to the plan are discretionary. There were no employer contributions to the
plan for 1994, 1995 or 1996.
F-17
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING
AND FINANCING ACTIVITIES
The Company paid interest of $4, $3 and $34 during 1994, 1995 and 1996,
respectively. The Company paid $153, $423 and $2,123 in income taxes during
1994, 1995 and 1996, respectively.
As more fully described in Note 2, the Company acquired Clarity, Inc. in
1995 in exchange for shares of its common stock and cash and acquired SQLSoft,
Inc., SofTeach Corporation and Noetix Corporation in 1996 in exchange for a
combination of stock, cash and notes payable.
13. OPERATING BUSINESS GROUPS
The Company is engaged in information technology consulting and training
services and software sales. Total revenue by segment represents sales to
unaffiliated customers. Inter-segment sales are not material. Operating profit
represents total revenue less operating expenses. In computing operating
profit none of the following items have been added or deducted: general
corporate expenses, interest expense or income taxes.
Identifiable assets are those assets used in the operations of each industry
segment. Corporate assets primarily consist of cash, investments and certain
prepaid expenses.
Summarized financial information by business group for 1994, 1995 and 1996
is as follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE CORPORATE TOTAL
---------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
1994:
Revenue...................... $6,132 $ 551 $369 $ 7,052
Operating profit............. 2,138 79 281 $(1,207) 1,291
Identifiable assets.......... 2,246 20 14 1,040 3,320
Depreciation and
amortization................ 49 4 3 13 69
Capital expenditures......... 160 11 10 39 220
1995:
Revenue...................... $9,725 $4,821 $205 $14,751
Operating profit............. 3,645 1,161 (22) $(1,803) 2,981
Identifiable assets.......... 2,740 1,189 16 2,898 6,843
Depreciation and
amortization................ 58 127 4 12 201
Capital expenditures......... 201 500 6 204 911
</TABLE>
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE CORPORATE TOTAL
---------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
1996:
Revenue...................... $16,312 $9,385 $1,201 $26,898
Operating profit............. 3,884 1,381 (325) $(1,694) 3,246
Identifiable assets.......... 5,437 3,880 1,659 1,980 12,956
Depreciation and
amortization................ 20 439 68 128 655
Capital expenditures......... 28 1,001 31 136 1,196
</TABLE>
F-18
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
14. SUBSEQUENT EVENTS
In February 1997, the Company acquired the stock of Oxford Computer Group
Limited (Oxford), a company that provides information technology consulting
and training services with offices in Oxford, London and Birmingham. The
shareholders of Oxford exchanged their shares for 280,000 shares of the
Company's common stock. The acquisition will be accounted for by the purchase
method. Accordingly, the results of operations of Oxford will be included with
the results of operations of the Company for periods subsequent to the date of
acquisition. In connection with the acquisition of Oxford, 207,891 stock
options were granted to certain key employees of Oxford. Terms of the option
agreements include an exercise price of $9.40 and vesting over four years.
Oxford had revenues of (Pounds)4,730 (approximately $7,384)(unaudited) and
net income of (Pounds)109 (approximately $170)(unaudited) for the year ended
December 31, 1996.
The unaudited pro forma combined results of operations of the Company and
Oxford for 1996 are as follows:
<TABLE>
<S> <C>
Revenue.............................................................. $34,282
Net income........................................................... $ 2,083
Net income per share................................................. $ 0.25
</TABLE>
As described in Note 8, the Company entered into an $8,000 line of credit
agreement on March 14, 1997. The amounts outstanding under the Company's
existing line of credit were refinanced under the new line of credit.
Additionally, the Company used $3,900 of the line of credit to repurchase
415,000 shares of the Company's common stock at $8.50 and $9.75 per share from
certain shareholders of the Company.
In January and February 1997, 572,200 stock options were granted to certain
employees of the Company with terms that include an exercise price of $5.00
per share and vesting over five years.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
SofTeach Corporation
In our opinion, the accompanying statements of income, of changes in
shareholders' equity and of cash flows present fairly, in all material
respects, the results of operations and cash flows of SofTeach Corporation for
the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
March 14, 1997
F-20
<PAGE>
SOFTEACH CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Training revenue.................................................. $1,507,717
Cost of training.................................................. 655,319
----------
Gross profit.................................................. 852,398
Selling, general and administrative expense....................... 504,707
----------
Income from operations............................................ 347,691
Interest income................................................... 9,021
Other income...................................................... 2,683
----------
Net income........................................................ $ 359,395
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-21
<PAGE>
SOFTEACH CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------
ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 62 $ 6 $9,770 $480,830 $490,606
Net income................ 359,395 359,395
Shareholder distributions. (575,394) (575,394)
--- --- ------ -------- --------
Balance at September 30,
1996..................... 62 $ 6 $9,770 $264,831 $274,607
=== === ====== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-22
<PAGE>
SOFTEACH CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 359,395
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 41,240
Changes in assets and liabilities:
Increase in accounts receivable............................. (8,234)
Increase in inventories..................................... (10,409)
Increase in prepaid expenses and other assets............... (7,556)
Decrease in accounts payable................................ (18,268)
Increase in unearned revenue................................ 7,991
---------
Net cash provided by operating activities..................... 364,159
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................ (6,216)
---------
Net cash used in investing activities......................... (6,216)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder distributions..................................... (575,394)
---------
Net cash used in financing activities......................... (575,394)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................... (217,451)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ 340,006
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 122,555
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
F-23
<PAGE>
SOFTEACH CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
SofTeach Corporation (the "Company") provides information technology
training to clients throughout Denver and the Colorado front range.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Expenditures for maintenance and repairs are charged to expense as incurred.
Additions, improvements and major replacements are capitalized. For financial
reporting purposes, depreciation is provided using the straight-line method
over the estimated useful lives of five years.
REVENUE RECOGNITION
Tuition revenue is recognized on the last day the class is held. Tuition
received prior to the classes being held is deferred.
INCOME TAXES
The Company has elected to be taxed under the provisions of the "S"
corporation section of the Internal Revenue Code. Under those provisions, the
Company does not pay corporate income taxes, nor does it receive the benefit
of net operating loss carryforwards or carrybacks. Instead, the shareholders
are liable for individual income taxes on their respective shares of the
Company's taxable income or include their respective shares of the Company's
taxable income or include their respective shares of the Company's net
operating loss in their individual income tax returns.
ADVERTISING COSTS
Advertising costs are expensed as incurred and included in selling, general
and administrative expense. Advertising expenses amounted to $40,739 for the
nine months ended September 30, 1996.
F-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
2. CONCENTRATION OF CREDIT RISK
The Company provides instructor-led informational technology training
specializing in Microsoft technologies. During the nine month period ended
September 30, 1996, the Company had sales to two major customers of
approximately $180,000 and $160,000, respectively, which individually exceed
10% of total sales. Accounts receivable from these customers was 23% of total
accounts receivable at September 30, 1996. The overall credit SofTeach
Corporation risk associated with the Company's trade receivables is minimal
due to the large number of customers in differing industries. Historically,
the Company has not experienced significant losses on trade receivables.
3. LEASE COMMITMENTS
The Company rents all its office space and computer training equipment under
non-cancelable operating leases. All lease agreements are guaranteed by the
shareholders of the Company. Rent expense for the nine months ended September
30, 1996 was $67,010.
4. EMPLOYEE RETIREMENT PLANS
Employees of the Company participate in a savings plan. All employees are
eligible to participate in the plan after six months of employment and
attaining the age of 21. SofTeach contributes 3% of the average employee's
annual salary in four equal quarterly distributions. Employees vest
immediately in employer contributions. Employees may contribute up to 15% of
their salary before income taxes. During the year, SofTeach recognized
expenses of and contributed cash to the savings plan in the amount of $10,507.
5. SUBSEQUENT EVENT
Effective October 1, 1996, SofTeach Corporation sold substantially all of
its assets and liabilities to ARIS Corporation under an asset purchase
agreement and liquidated the corporation. Under the terms of the agreement,
SofTeach's stockholders received approximately $1.25 million in cash and notes
from ARIS plus ARIS common stock valued at $152,000. The notes from ARIS are
secured by the SofTeach assets sold to ARIS.
F-25
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet of ARIS Corporation at
December 31, 1996 gives effect to the acquisition of Oxford Computer Group
Limited as if it was consummated on December 31, 1996. The unaudited pro forma
combined statement of income of ARIS Corporation for the year ended December
31, 1996 gives effect to the acquisition of SQLSoft, Inc., SofTeach
Corporation, Noetix Corporation and Oxford Computer Group Limited as if such
businesses were acquired on January 1, 1996. The unaudited pro forma combined
statement of income of ARIS Corporation for the quarter ended March 31, 1997
gives effect to the acquisition of Oxford Consulting Group Limited as if such
business was acquired on January 1, 1997.
The unaudited pro forma combined balance sheet and statement of income are
presented for informational purposes only and do not purport to represent what
the Company's financial position and results of operation for the year ended
December 31, 1996 and the results of operations for the quarter ended March
31, 1997 would actually have been had the acquisitions, in fact, occurred on
January 1, 1996, or the Company's results of operations for any future period.
The unaudited pro forma combined balance sheet and statement of income should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus and the information set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
F-26
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FORMA
ARIS OXFORD ADJUSTMENTS COMBINED
------- ------ ----------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 177 $ 1 $ 178
Investments in marketable securities....... 1,396 1,396
Accounts receivable........................ 5,169 1,448 6,617
Other current assets....................... 1,052 445 1,497
Property and equipment, net................ 2,517 1,224 3,741
Intangible and other assets................ 2,645 32 $ 970 (a) 3,647
------- ------ ------ -------
Total assets........................... $12,956 $3,150 $ 970 $17,076
======= ====== ====== =======
Current liabilities........................ $ 4,033 $2,613 $ 6,646
Long-term debt and other................... 713 107 820
Common stock............................... 1,943 $1,400 (a) 3,343
Retained earnings.......................... 6,042 394 (394)(b) 6,042
Unrealized holding gain.................... 225 225
Currency translation adjustment............ 36 (36)(b) --
------- ------ ------ -------
Total liabilities and equity........... $12,956 $3,150 $ 970 $17,076
======= ====== ====== =======
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-27
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL TOTAL
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
1996 1997 PRO FORMA
ARIS SOFTEACH ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED
--------- -------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Consulting............. $ 16,312 $1,933 $ 18,245
Training............... 9,385 $1,508 1,079 5,451 17,423
Software............... 1,201 821 2,022
--------- ------ ----- ------ ---------
Total revenue........ 26,898 1,508 1,900 7,384 37,690
--------- ------ ----- ------ ---------
Cost of sales
Consulting and
training.............. 13,353 655 273 3,277 17,558
Software............... 93 434 527
--------- ------ ----- ------ ---------
Total cost of sales.. 13,446 655 707 3,277 18,085
--------- ------ ----- ------ ---------
Gross profit ........ 13,452 853 1,193 4,107 19,605
Selling, general and
administrative......... 10,206 505 1,025 3,837 $317(c) 15,890
--------- ------ ----- ------ ----- ---------
Income from operations.. 3,246 348 168 270 (317) 3,715
Other income (expense) 115 11 7 (46) (23)(d) 64
--------- ------ ----- ------ ----- ---------
Income before income
tax.................... 3,361 359 175 224 (340) 3,779
Income tax expense...... 1,347 14 54 156 (e) 1,571
--------- ------ ----- ------ ----- ---------
Net income.............. $ 2,014 $ 359 $ 161 $ 170 $(496) $ 2,208
========= ====== ===== ====== ===== =========
Net income per share.... $ 0.23 $ 0.26
========= =========
Weighted average number
of common and common
equivalent shares
outstanding............ 8,581,572 8,581,572
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-28
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
INDIVIDUALLY
INSIGNIFICANT
1997 PRO FORMA
ARIS ACQUISITIONS ADJUSTMENTS COMBINED
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Consulting.................... $ 6,633 $ 6,633
Education..................... 3,243 $1,586 4,829
Software...................... 533 533
--------- ------ ---------
10,409 1,586 11,995
Cost of sales
Consulting and training....... 4,901 590 5,491
Software...................... 48 -- 48
--------- ------ ---------
Total cost of sales.......... 4,949 590 5,539
--------- ------ ---------
Gross profit................. 5,460 996 6,456
Selling, general and
administrative................ 3,751 857 $ 11(c) 4,619
--------- ------ ---- ---------
Income from operations......... 1,709 139 (11) 1,837
Other income (expense)......... (42) (6) (48)
--------- ------ ---- ---------
Income before income tax...... 1,667 133 (11) 1,789
Income tax expense............. 623 49 21(e) 693
--------- ------ ---- ---------
Net income.................... $ 1,044 84 $(32) $ 1,096
========= ====== ==== =========
Net income per share........... $ 0.12 $ 0.13
========= =========
Weighted average number of
common and common equivalent
shares outstanding............ 8,512,537 8,512,537
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.
F-29
<PAGE>
ARIS CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET AND STATEMENT OF INCOME
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The pro forma combined balance sheet gives effect to the acquisition of
Oxford Computer Group Limited as if it was consummated on December 31, 1996.
The pro forma adjustments are based on consideration exchanged, including the
estimated fair value of assets acquired, liabilities assumed and common stock
issued. The actual adjustments, which will be based on valuations of fair
value as of the date of acquisition, may differ from that made herein.
The pro forma combined statement of income for the year ended December 31,
1996 gives effect to the acquisition of (1) SofTeach Corporation, (2) other
individually insignificant 1996 acquisitions (Noetix Corporation and SQLSoft,
Inc.) and (3) other individually insignificant 1997 acquisitions (Oxford
Computer Group Limited), as if these entities had been acquired as of January
1, 1996. The results of operations of SofTeach Corporation, Noetix Corporation
and SQLSoft, Inc. have been included in the consolidated results of operations
of ARIS Corporation as of the dates the acquisitions were consummated which
are October 1, 1996, May 1, 1996 and October 1, 1996, respectively. As Oxford
Computer Group Limited was acquired subsequent to December 31, 1996, the
consolidated results of operations of ARIS for the year ended December 31,
1996 do not include any amounts related to Oxford Computer Group Limited.
Accordingly, the SofTeach, Oxford Computer Group Limited, Noetix Corporation
and SQLSoft, Inc. results of operations included in the pro forma statement of
income for the year ended December 31, 1996 reflect the results of operations
for the period January 1, 1996 to September 30, 1996, the year ended December
31, 1996, the period January 1, 1996 to September 30, 1996 and the period
January 1, 1996 to April 30, 1996, respectively.
The pro forma combined statement of income for the quarter ended March 31,
1997 gives effect to the acquisition of Oxford Computer Group Limited as if it
was consumated on January 1, 1997. The acquisition of Oxford Computer Group
Limited was completed on February 28, 1997 and, therefore, the results of
operations have been included in the consolidated results of ARIS Corporation
from that date. Accordingly, Oxford Computer Group Limited results of
operations included in the pro forma statement of income for the quarter ended
March 31, 1997 are for the period from January 1, 1997 to February 28, 1997.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash, notes payable and common stock
consideration exchanged by the Company for the fair value of the assets
acquired and liabilities assumed.
2. PRO FORMA ADJUSTMENTS
(a) To record the February 1997 acquisition of Oxford Computer Group as
follows:
<TABLE>
<S> <C>
Purchase price................................................ $1,400
Net assets acquired........................................... (430)
------
Purchase price allocated to goodwill.......................... $ 970
======
</TABLE>
F-30
<PAGE>
ARIS CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET AND STATEMENT OF INCOME
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The purchase price of Oxford Computer Group was 280,000 shares of the
Company's common stock which was valued at $5.00 per share which was the fair
value of the Company's common stock on the date the acquisition was announced
publicly.
(b) To eliminate the equity of the acquired business.
(c) To record amortization of goodwill, non-compete agreement and
capitalized software development costs for periods prior to the acquisition
dates of the entities acquired. The purchased research and development cost of
$307 recorded in the Noetix Corporation acquisition was charged to research
and development expense in the 1996 consolidated statement of income of ARIS
Corporation. Goodwill is amortized over fifteen years, non-compete agreement
over approximately two years and capitalized software development costs over
approximately three years. Capitalized software development costs are
amortized at the greater of the amount computed using (a) the ratio of current
revenues for a product to the total of current and anticipated future
revenues, or (b) the straight-line method over the remaining estimated
economic life of the product. The straight-line method is used for other
intangible assets.
(d) To record interest expense on note payable issued as consideration in
acquisition of SofTeach Corporation.
(e) To record income tax expense on combined pro forma income before income
tax adjusted for nondeductible goodwill amortization of $148 and $11 based on
the effective tax rate of ARIS Corporation for the year ended December 31,
1996 and the quarter ended March 31, 1997 of 40% and 37%, respectively.
F-31
<PAGE>
[MAP SHOWING LOCATIONS OF CONSULTING AND TRAINING OFFICES.]
[TRADEMARKS AND SERVICE MARKS OF THE COMPANY]
The ARIS name and logo are service marks, and the Noetix, NoetixViews and
ARIS DFRAG names are trademarks of the Company. This Prospectus also includes
tradenames, trademarks and service marks of other companies.
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 1
The Company............................................................. 2
Risk Factors............................................................ 3
Use of Proceeds......................................................... 10
Dividend Policy......................................................... 10
Capitalization.......................................................... 11
Dilution................................................................ 12
Selected Consolidated and Pro Forma Combined Financial Data............. 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 15
Business................................................................ 26
Management.............................................................. 39
Certain Transactions.................................................... 44
Principal and Selling Shareholders...................................... 45
Description of Capital Stock............................................ 46
Shares Eligible for Future Sale......................................... 49
Underwriting............................................................ 50
Legal Matters........................................................... 52
Experts................................................................. 52
Additional Information.................................................. 52
Index to Financial Statements........................................... F-1
</TABLE>
UNTIL , 1997, (25 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
[LOGO OF ARIS(SM)]
2,020,800 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
PROSPECTUS
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses of this
Offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
AMOUNT(1)
---------
<S> <C>
SEC Registration Fee............................................ $ 10,691
NASD Filing Fee................................................. 4,028
Nasdaq National Market Listing Fee.............................. 42,310
Legal Fees and Expenses......................................... 140,000
Accounting Fees and Expenses.................................... 167,000
Blue Sky Qualification Fees and Expense......................... 5,000
Transfer Agent and Registrar Fees............................... 10,000
Printing Expenses............................................... 100,000
Insurance Policy Premiums....................................... 175,000
Miscellaneous Expenses.......................................... 45,971
--------
Total....................................................... $700,000
========
</TABLE>
- --------
(1) All amounts have been estimated except the SEC, NASD and Nasdaq fees. All
of the above expenses will be payable by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
Securities Act). Article 9 of the registrant's Amended and Restated Bylaws
provides for indemnification of the registrant's directors, officers,
employees and agents to the fullest extent permitted by law.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except
in certain circumstances involving intentional misconduct, knowing violations
of law or illegal corporate loans or distributions, or any transaction from
which the director personally receives a benefit in money, property or
services to which the director is not legally entitled. Article VI of the
registrant's Amended and Restated Articles of Incorporation contains
provisions implementing, to the fullest extent permitted by Washington law,
such limitations on a director's liability to the registrant and its
shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and
directors, and by the registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has made the following sales of its securities for the
consideration indicated during the past three years, which sales were not
registered under the Securities Act, and none of which sales involved an
underwriter.
The Company made no sales of its securities in 1994.
Between January 1, 1995 and February 1, 1997, the Company issued an
aggregate of 1,208,000 shares of Common Stock at prices ranging from $0.03 to
$5.00 per share to 16 employees upon the exercise of stock options. The sales
and issuance of securities in the transactions described above were deemed to
be exempt from registration under the Securities Act by virtue of Rule 701
promulgated thereunder in that they were offered and sold either pursuant to
written compensatory benefit plans or pursuant to a written contract relating
to compensation, as provided by Rule 701.
With respect to each of the following transactions, as to all such
securities except those issued in connection with stock splits (as to which
there was no "sale" within the meaning of the Securities Act), the Company
relied upon Section 4(2) of the Securities Act, or Regulation D promulgated
thereunder, as transactions by an issuer not involving a public offering. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and warrants issued in such transactions.
All recipients either received adequate information about the Company or had
access, through employment or other relationships, to such information:
On January 1, 1995, the Company issued an aggregate of 1.4 million shares
of Common Stock to the four shareholders of Clarity, Inc. as consideration
for the Company's acquisition of the capital stock of that company.
On May 1, 1996, the Company issued an aggregate of 708,900 shares of
Common Stock to the five shareholders of SQLSoft, Inc. as consideration for
the Company's acquisition of the capital stock of that company.
On September 30, 1996, the Company issued 42,000 shares of Common Stock
to SofTeach Corporation as partial consideration for the Company's
acquisition of the assets of that company.
On October 1, 1996, the Company issued 40,000 shares of Common Stock to
one of the shareholders of Noetix Corporation as partial consideration for
the Company's acquisition of the capital stock of that company.
On February 24, 1997, the Company issued a five-year warrant to purchase
up to 4,000 shares of Common Stock at an exercise price of $10.00 per share
to Van Valkenberg Furber Law Group P.L.L.C. as consideration for services
to be rendered to the Company.
The sales and issuance of securities in the transaction described below
were deemed to be exempt from registration under the Securities Act by virtue
of Regulation S promulgated thereunder in that they were offered and sold in
an offshore transaction, without a directed selling effort in the United
States, to persons whom the Company believed to be outside the United States
at the time of issuance. The recipients of the securities in transaction
described above represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued. On February 28, 1997, the Company issued an aggregate of
280,000 shares of Common Stock to the ten shareholders of Oxford Computer
Group Limited as consideration for the Company's acquisition of the capital
stock of that company.
II-2
<PAGE>
ITEM 16. EXHIBITS
The following is a complete list of Exhibits and Schedules filed as part of
this Registration Statement and which are incorporated herein.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1+ --Form of Underwriting Agreement.
3.1 --Amended and Restated Articles of Incorporation.
3.2 --Amended and Restated Bylaws.
4.1 --Articles IV and V of the Amended and Restated Articles (filed as
Exhibit 3.1).
4.2 --Articles II, IV, VI, VII, IX, X and XI of the Amended and Restated
Bylaws (filed as Exhibit 3.2).
4.3 --Form of Common Stock Certificate.
5.1 --Opinion of Van Valkenberg Furber Law Group, P.L.L.C. as to legality
of shares to be issued.
10.1* --ARIS Corporation 1995 Stock Option Plan.
10.2 --ARIS Corporation 1997 Stock Option Plan.
10.3*** --1997 Consulting Incentive Compensation Plan.
10.4* --Employment Agreement dated July 22, 1992 between the Company and
Kendall W. Kunz.
10.5* --Employment Agreement effective as of December 31, 1994 between the
Company and Jeffrey W. Gilles.
10.6* --Employment Agreement dated February 11, 1991 between the Company
and John Y. Song.
10.7* --Summary of Key Person Insurance Policy dated February 13, 1996,
written by New York Life Insurance Company, owned by the Company,
naming Paul Y. Song as the insured.
10.8* --Summary of Insurance held by the Company prepared by Acordia
Northwest, Inc. on March 10, 1997.
10.9* --Credit Agreement between the Company and U.S. Bank of Washington,
National Association, dated March 14, 1997.
10.10* --Registration Rights Agreement dated as of February 28th, 1997 by
and between the Company and certain holders of Common Stock.
10.11* --Registration Rights Agreement dated as of February 28th, 1997 by
and between the Company and Ian C.H. Cunningham.
10.12* --Promissory Note in the amount of $500,000 dated September 30, 1996
by the Company, as Maker, and SofTeach Corporation, as Holder.
10.13* --Promissory Note in the amount of $1,240,800 dated October 1, 1996
by ARIS Software, Inc. as Maker, and the Company, as Holder.
10.14* --Promissory Note Intercompany Loan dated October 1, 1996 by ARIS
Software, Inc. as Maker, and the Company as Holder.
10.15** --Office Building Lease dated May 5, 1994 between the Company, as
tenant and John C. Radovich, as landlord, for the administrative
offices located at Fort Dent One, as amended.
10.16** --Office Building Lease dated August 25, 1992 between the Company, as
tenant and John C. Radovich, as landlord, for the consulting offices
and intra-company training center located at Fort Dent Two, as
amended.
10.17** --Office Lease for Cornell Oaks Corporate Center dated February 29,
1996, by and between Tolcott Realty I Limited Partnership, as
landlord, and the Company, as tenant, for administrative offices and
training center in Beaverton, Oregon, as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.18** --Office/Warehouse/Showroom Lease dated December 20, 1994 by and
between Century Properties Fund XIII, as landlord, and SQLSoft, as
predecessor in interest to the Company, as tenant, for
administrative offices and training center in Bellevue, Washington,
as modified.
10.19** --Office Lease dated September 1, 1994, between KOLL/OPIC Northwest,
as landlord, and Clarity, Inc., as predecessor in interest to the
Company, as tenant, for administrative offices and training center
in Bellevue, Washington, as amended.
10.20** --Standard Colorado Lease dated May 20, 1992, between Aetna Life
Insurance Company, as landlord, and SofTeach Corporation, as
predecessor in interest to the Company, as tenant, for
administrative offices and training center in Denver, Colorado, as
amended.
10.21** --Deed of Lease dated May 21, 1996, by and between Fairwill Limited
Partnership, as landlord, and the Company, as tenant, for
administrative offices and training center in Fairfax, Virginia.
10.22** --Lease dated August 26, 1994, from The Mayor and Commonality and
Citizens of the City of London Trustees of the Bridge House Estates
to Oxford Computer Group Limited ("Oxford"), for administrative
offices and training center in London, England.
10.23** --Lease dated August 22, 1996, from The Mayor and Commonality and
Citizens of the City of London Trustees of the Bridge House Estates
to Oxford, for administrative offices and training center in London,
England.
10.24** --Lease dated December 18, 1991, between Naroti Resources SA, as
landlord, and Oxford Computer Training Services Limited, as tenant,
for administrative offices and training center in London, England.
10.25** --Lease dated January 30, 1995, between Birmingham Business Park
Limited, as landlord, and Oxford, as tenant, for administrative
offices and training center in London, England.
10.26** --Lease dated January 30, 1995, between Birmingham Business Park
Limited, as landlord, and Oxford, as tenant, for administrative
offices and training center in London, England.
10.27** --Sub-Lease dated September 20, 1995, between Wolsey Hall Oxford
Limited, as landlord, and Oxford, as tenant, for administrative
offices and training center in Oxford, England.
10.28** --Lease dated April 12, 1990, between Oxford Examination Research
Centre Limited, as landlord, and Oxford, as tenant, for
administrative offices and training center in Oxford, England.
10.29** --Lease dated December 25, 1992, between Oxford Examination Research
Centre Limited, as landlord, and Oxford, as tenant, for
administrative offices and training center in Oxford, England.
10.30* --Agreement and Plan of Merger dated as of December 31, 1994, among
Clarity, Inc., the Company and the shareholders of Clarity.
10.31* --Agreement and Plan of Merger dated as of April 15, 1996, among
SQLSoft, Inc., the Company and the shareholders of SQLSoft.
10.32* --Asset Purchase Agreement dated as of August 5, 1996, between Cray
Research, Inc. and the Company.
10.33* --Stock Purchase Agreement dated as of September 30, 1996, by and
among Dewayne Cowles, Mark Turner, Steve Masters, Noetix Corporation
and the Company.
10.34* --Asset Purchase Agreement effective as of September 30, 1996, by and
Among SofTeach Corporation, Terri Olson, Greg Olson and the Company.
10.35* --Agreement for the sale and purchase of the entire issued share
capital of Oxford Computer Group Limited dated February 14, 1997, by
and among the Company and the Shareholders of Oxford Computer Group
Limited.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.36* --Sun Microsystems Educational Services U.S. Strategic Alliance
Agreement by and between SunService, a division of Sun Microsystems
Inc. and the Company.
10.37* --Microsoft Solution Provider Agreement and Microsoft Authorized
Technical Education Center Addendum, current through December 31,
1997, between Microsoft Corporation and the Company.
10.38*** --Reseller Agreement dated January 24, 1995, between Oracle
Corporation and the Company, as amended, and related agreements.
10.39* --Form of ARIS Corporation Professional Services Agreement.
10.40** --Master Agreement dated April 8, 1994, between Tektronix, Inc. and
the Company.
10.41** --Software Integration Services Agreement dated April 30, 1996,
between ESCO Corporation and the Company.
10.42** --Award/Contract dated September 16, 1994, issued by the Internal
Revenue Service naming the Company as Contractor.
10.43* --Contract BN40790 for Implementation of Oracle Software Accounts
Receivable and Order Entry Modules between the King County
Department of Metropolitan Services and the Company effective
September 8, 1995.
10.44 --Boeing Information and Support Services Engineering/Technical
Contract Labor Terms and Conditions, effective as of July 1996,
between The Boeing Company and the Company.
10.45* --Master Services Agreement and Intellectual Property Assignment
effective as of November 20, 1996, between Microsoft Corporation and
the Company.
10.46* --ARIS Corporation Professional Services Agreement dated December 5,
1995, between Oregon Health Sciences University and the Company.
10.47** --Master Consulting Agreement #HY941108, effective as of April 8,
1994, between the Company and General Services Administration.
10.48* --ARIS Corporation Professional Services Agreement dated May 22,
1996, between The Gates Rubber Company and the Company.
10.49* --ARIS Corporation Professional Services Agreement dated April 30,
1996 between Quebecor Printing (USA) Corp. and the Company.
10.50* --Computer Services Agreement dated August 31, 1994, by and between
the Company and Tosco Northwest Company.
10.51* --ARIS Corporation Professional Services Agreement dated February 13,
1995 between Weyerhaeuser and the Company.
10.52 --Form of Education Services Agreement between NIKE, Inc. and the
Company.
10.53 --[Reserved]
10.54* --Stock Redemption Agreements dated as of February 28, 1997, by and
between the Company and certain shareholders.
10.55** --Lease dated February 14, 1997 between Oxford Business Park Limited,
as landlord, and Oxford, as tenant, for administrative offices and
training center in Oxford, England.
11.1 --Statement re computation of per share earnings
21.1* --List of the Company's Subsidiaries.
23.1 --Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in
Exhibit 5.1).
23.2 --Consent of Price Waterhouse LLP, independent certified public
accountants for the Company.
24.1* --Power of Attorney.
27.1 --Financial Data Schedule
99.1* --Financial Statement Schedule II--Valuation and Qualifying Accounts
and Reserves.
</TABLE>
- --------
(+) To be filed by amendment.
(*) Previously filed.
(**) Filed pursuant to Rule 202 of Regulation S-T.
(***) Confidential treatment requested.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Seattle,
Washington on May 29, 1997.
ARIS CORPORATION
/s/ Paul Y. Song
By___________________________________
Paul Y. Song
President and Chief Executive
Officer
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul Y. Song Chairman, President and Chief May 29, 1997
- ------------------------------------ Executive Officer (Principal
Paul Y. Song Executive Officer)
/s/ Thomas W. Averill Vice President, Finance and Chief May 29, 1997
- ------------------------------------ Financial Officer (Principal
Thomas W. Averill Financial and Accounting Officer)
* Senior Vice President of Western May 29, 1997
- ------------------------------------ Operations and Director
Kendall W. Kunz
* Director May 29, 1997
- ------------------------------------
Bruce R. Kennedy
* Director May 29, 1997
- ------------------------------------
Kenneth A. Williams
*/s/ Thomas W. Averill Attorney-in-Fact May 29, 1997
- ------------------------------------
Thomas W. Averill
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1+ --Form of Underwriting Agreement.
3.1 --Amended and Restated Articles of Incorporation.
3.2 --Amended and Restated Bylaws.
4.1 --Articles IV and V of the Amended and Restated
Articles (filed as Exhibit 3.1).
4.2 --Articles II, IV, VI, VII, IX, X and XI of the Amended
and Restated Bylaws (filed as Exhibit 3.2).
4.3 --Form of Common Stock Certificate.
5.1 --Opinion of Van Valkenberg Furber Law Group, P.L.L.C.
as to legality of shares to be issued.
10.1* --ARIS Corporation 1995 Stock Option Plan.
10.2 --ARIS Corporation 1997 Stock Option Plan.
10.3*** --1997 Consulting Incentive Compensation Plan.
10.4* --Employment Agreement dated July 22, 1992 between the
Company and Kendall W. Kunz.
10.5* --Employment Agreement effective as of December 31,
1994 between the Company and Jeffrey W. Gilles.
10.6* --Employment Agreement dated February 11, 1991 between
the Company and John Y. Song.
10.7* --Summary of Key Person Insurance Policy dated February
13, 1996, written by New York Life Insurance Company,
owned by the Company, naming Paul Y. Song as the
insured.
10.8* --Summary of Insurance held by the Company prepared by
Acordia Northwest, Inc. on March 10, 1997.
10.9* --Credit Agreement between the Company and U.S. Bank of
Washington, National Association, dated March 14,
1997.
10.10* --Registration Rights Agreement dated as of February
28th, 1997 by and between the Company and certain
holders of Common Stock.
10.11* --Registration Rights Agreement dated as of February
28th, 1997 by and between the Company and Ian C.H.
Cunningham.
10.12* --Promissory Note in the amount of $500,000 dated
September 30, 1996 by the Company, as Maker, and
SofTeach Corporation, as Holder.
10.13* --Promissory Note in the amount of $1,240,800 dated
October 1, 1996 by ARIS Software, Inc. as Maker, and
the Company, as Holder.
10.14* --Promissory Note Intercompany Loan dated October 1,
1996 by ARIS Software, Inc. as Maker, and the Company
as Holder.
10.15** --Office Building Lease dated May 5, 1994 between the
Company, as tenant and John C. Radovich, as landlord,
for the administrative offices located at Fort Dent
One, as amended.
10.16** --Office Building Lease dated August 25, 1992 between
the Company, as tenant and John C. Radovich, as
landlord, for the consulting offices and intra-company
training center located at Fort Dent Two, as amended.
10.17** --Office Lease for Cornell Oaks Corporate Center dated
February 29, 1996, by and between Tolcott Realty I
Limited Partnership, as landlord, and the Company, as
tenant, for administrative offices and training center
in Beaverton, Oregon, as amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.18** --Office/Warehouse/Showroom Lease dated December 20,
1994 by and between Century Properties Fund XIII, as
landlord, and SQLSoft, as predecessor in interest to
the Company, as tenant, for administrative offices and
training center in Bellevue, Washington, as modified.
10.19** --Office Lease dated September 1, 1994, between
KOLL/OPIC Northwest, as landlord, and Clarity, Inc.,
as predecessor in interest to the Company, as tenant,
for administrative offices and training center in
Bellevue, Washington, as amended.
10.20** --Standard Colorado Lease dated May 20, 1992, between
Aetna Life Insurance Company, as landlord, and
SofTeach Corporation, as predecessor in interest to
the Company, as tenant, for administrative offices and
training center in Denver, Colorado, as amended.
10.21** --Deed of Lease dated May 21, 1996, by and between
Fairwill Limited Partnership, as landlord, and the
Company, as tenant, for administrative offices and
training center in Fairfax, Virginia.
10.22** --Lease dated August 26, 1994, from The Mayor and
Commonality and Citizens of the City of London
Trustees of the Bridge House Estates to Oxford
Computer Group Limited ("Oxford"), for administrative
offices and training center in London, England.
10.23** --Lease dated August 22, 1996, from The Mayor and
Commonality and Citizens of the City of London
Trustees of the Bridge House Estates to Oxford, for
administrative offices and training center in London,
England.
10.24** --Lease dated December 18, 1991, between Naroti
Resources SA, as landlord, and Oxford Computer
Training Services Limited, as tenant, for
administrative offices and training center in London,
England.
10.25** --Lease dated January 30, 1995, between Birmingham
Business Park Limited, as landlord, and Oxford, as
tenant, for administrative offices and training center
in London, England.
10.26** --Lease dated January 30, 1995, between Birmingham
Business Park Limited, as landlord, and Oxford, as
tenant, for administrative offices and training center
in London, England.
10.27** --Sub-Lease dated September 20, 1995, between Wolsey
Hall Oxford Limited, as landlord, and Oxford, as
tenant, for administrative offices and training center
in Oxford, England.
10.28** --Lease dated April 12, 1990, between Oxford
Examination Research Centre Limited, as landlord, and
Oxford, as tenant, for administrative offices and
training center in Oxford, England.
10.29** --Lease dated December 25, 1992, between Oxford
Examination Research Centre Limited, as landlord, and
Oxford, as tenant, for administrative offices and
training center in Oxford, England.
10.30* --Agreement and Plan of Merger dated as of December 31,
1994, among Clarity, Inc., the Company and the
shareholders of Clarity.
10.31* --Agreement and Plan of Merger dated as of April 15,
1996, among SQLSoft, Inc., the Company and the
shareholders of SQLSoft.
10.32* --Asset Purchase Agreement dated as of August 5, 1996,
between Cray Research, Inc. and the Company.
10.33* --Stock Purchase Agreement dated as of September 30,
1996, by and among Dewayne Cowles, Mark Turner, Steve
Masters, Noetix Corporation and the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.34* --Asset Purchase Agreement effective as of September
30, 1996, by and Among SofTeach Corporation, Terri
Olson, Greg Olson and the Company.
10.35* --Agreement for the sale and purchase of the entire
issued share capital of Oxford Computer Group Limited
dated February 14, 1997, by and among the Company and
the Shareholders of Oxford Computer Group Limited.
10.36* --Sun Microsystems Educational Services U.S. Strategic
Alliance Agreement by and between SunService, a
division of Sun Microsystems Inc. and the Company.
10.37* --Microsoft Solution Provider Agreement and Microsoft
Authorized Technical Education Center Addendum,
current through December 31, 1997, between Microsoft
Corporation and the Company.
10.38*** --Reseller Agreement dated January 24, 1995, between
Oracle Corporation and the Company, as amended, and
related agreements.
10.39* --Form of ARIS Corporation Professional Services
Agreement.
10.40** --Master Agreement dated April 8, 1994, between
Tektronix, Inc. and the Company.
10.41** --Software Integration Services Agreement dated
April 30, 1996, between ESCO Corporation and the
Company.
10.42** --Award/Contract dated September 16, 1994, issued by
the Internal Revenue Service naming the Company as
Contractor.
10.43* --Contract BN40790 for Implementation of Oracle
Software Accounts Receivable and Order Entry Modules
between the King County Department of Metropolitan
Services and the Company effective September 8, 1995.
10.44 --Boeing Information and Support Services
Engineering/Technical Contract Labor Terms and
Conditions, effective as of July 1996, between The
Boeing Company and the Company.
10.45* --Master Services Agreement and Intellectual Property
Assignment effective as of November 20, 1996, between
Microsoft Corporation and the Company.
10.46* --ARIS Corporation Professional Services Agreement
dated December 5, 1995, between Oregon Health
Sciences University and the Company.
10.47** --Master Consulting Agreement #HY941108, effective as
of April 8, 1994, between the Company and General
Services Administration.
10.48* --ARIS Corporation Professional Services Agreement
dated May 22, 1996, between The Gates Rubber Company
and the Company.
10.49* --ARIS Corporation Professional Services Agreement
dated April 30, 1996 between Quebecor Printing (USA)
Corp. and the Company.
10.50* --Computer Services Agreement dated August 31, 1994,
by and between the Company and Tosco Northwest
Company.
10.51* --ARIS Corporation Professional Services Agreement
dated February 13, 1995 between Weyerhaeuser and the
Company.
10.52 --Form of Education Services Agreement between NIKE,
Inc. and the Company.
10.53 --[Reserved]
10.54* --Stock Redemption Agreements dated as of February 28,
1997, by and between the Company and certain
shareholders.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
10.55** --Lease dated February 14, 1997 between Oxford Business
Park Limited, as landlord, and Oxford, as tenant, for
administrative offices and training center in Oxford,
England.
11.1 --Statement re computation of per share earnings
21.1* --List of the Company's Subsidiaries.
23.1 --Consent of Van Valkenberg Furber Law Group P.L.L.C.
(Included in Exhibit 5.1).
23.2 --Consent of Price Waterhouse LLP, independent
certified public accountants for the Company.
24.1* --Power of Attorney.
27.1 --Financial Data Schedule
99.1* --Financial Statement Schedule II--Valuation and
Qualifying Accounts and Reserves.
</TABLE>
- --------
(+)To be filed by amendment.
(*)Previously filed.
(**)Filed pursuant to Rule 202 of Regulation S-T.
(***) Confidential Treatment Requested.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ARIS CORPORATION
(UBI NUMBER 601-276-879)
ARTICLE I
Name
----
The name of the corporation is ARIS Corporation (the "Corporation").
ARTICLE II
Authorized Shares
-----------------
(1) Classes. The Corporation shall be authorized to issue two classes
-------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares which the Corporation shall have authority to issue
is one hundred and five million (105,000,000); the authorized number of shares
of Common Stock shall be one hundred million (100,000,000), without par value;
the authorized number of shares of Preferred Stock shall be five million
(5,000,000), without par value.
(2) Preferred Stock. Shares of Preferred Stock may be issued from
---------------
time to time in one or more series. Shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. The Board of Directors of the Corporation is hereby
authorized to fix the designations and powers, preferences and relative,
participating, optional or other rights, if any, and qualifications, limitations
or other restrictions thereof, including, without limitation, the dividend rate
(and whether or not dividends are cumulative), conversion rights, if any, voting
rights, rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any wholly unissued series
of Preferred Stock and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding.
ARTICLE III
Directors
---------
(1) The number, term and manner in which directors of the Corporation
are to be elected in the manner specified in the bylaws of the Corporation,
subject to this Article III.
Amended and Restated Articles of Incorporation
-1-
<PAGE>
(2) The directors shall be classified with respect to the time for
which they severally hold office into three classes designated Class I, Class II
and Class III, as nearly equal in number as possible, as shall be provided in
the manner specified in the bylaws of the Corporation. Each director shall
serve for a term ending on the date of the third annual meeting of shareholders
following the annual meeting at which the director was elected; provided,
however, that each initial director in Class I shall hold office until the
annual meeting of shareholders in 2000, each initial director in Class II shall
hold office until the annual meeting of shareholders in 1999, and each initial
director in Class III shall hold office until the annual meeting of shareholders
in 1998. Notwithstanding the foregoing provisions of this Article III, each
director shall serve until his or her successor is duly elected and qualified or
until his or her death, resignation or removal.
ARTICLE IV
Shareholders' Rights
--------------------
1. Shareholders of the Corporation have no preemptive rights to
acquire additional shares issued by the Corporation.
2. Subject to the provisions of Article II(2) above, holders of
Common Stock and Preferred Stock shall be entitled to receive the net assets of
the Corporation upon dissolution.
ARTICLE V
Voting Rights
-------------
1. Subject to the provisions of Article II(2) above, holders of
Common Stock and Preferred Stock shall have unlimited voting rights.
2. At each election of directors, every shareholder entitled to vote
at such election has the right to vote the number of shares of stock held by
such shareholder for each of the directors to be elected. No cumulative voting
for directors shall be permitted.
ARTICLE VI
Limitation on Liability of Directors
------------------------------------
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for his or her conduct as a
director, which conduct takes place on or after the date this Article becomes
effective, except for (i) acts or omissions that involve intentional misconduct
or a knowing violation of law by the director, (ii) conduct violating RCW
23B.08.310, or (iii) any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. If,
Amended and Restated Articles of Incorporation
-2-
<PAGE>
after this Article becomes effective, the Washington Business Corporation Act is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be deemed eliminated or limited to the fullest extent
permitted by the Washington Business Corporation Act, as so amended. Any
amendment to or repeal of this Article shall not adversely affect any right or
protection of a director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal. This
provision shall not eliminate or limit the liability of a director for any act
or omission occurring prior to the date this Article becomes effective.
ARTICLE VII
Amendment of Articles
---------------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders and directors are subject to this reserved power.
DATED: May 2, 1997
/s/ Paul Y. Song
----------------------------------
Paul Y. Song, President
Amended and Restated Articles of Incorporation
-3-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
ARIS CORPORATION
ARTICLE I
Registered Office and Registered Agent
--------------------------------------
1. The registered office of the Corporation shall be located in the
State of Washington at such place as may be fixed from time to time by the Board
of Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. A registered agent so appointed shall consent to appointment in writing
and such consent shall be filed with the Secretary of State of the State of
Washington.
2. If a registered agent changes the street address of the agent's
business office, the registered agent may change the street address of the
registered office of the Corporation by notifying the Corporation in writing of
the change and signing, either manually or in facsimile, and delivering to the
Secretary of State for filing a statement of such change, as required by law.
3. The Corporation may change its registered agent at any time upon
the filing of an appropriate notice with the Secretary of State, with the
written consent of the new registered agent either included in or attached to
such notice.
ARTICLE II
Shareholders' Meetings
----------------------
1. Meeting Place. All meetings of the shareholders shall be held,
-------------
pursuant to proper notice as set forth in Article II Section 5 of these Amended
and Restated Bylaws (the "Bylaws"), at the principal executive office of the
Corporation, or at such other place as shall be determined from time to time by
the Board of Directors.
2. Annual Meeting Time. The annual meeting of the shareholders for
-------------------
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and at
such hour as may be determined by resolution of the Board of Directors from time
to time. In the absence of such determination, the annual meeting shall be held
each year on the second Tuesday of March, at the hour of 1:00 p.m., if not a
legal holiday, and if a legal holiday, then on the next business day following,
at the same hour.
3. Annual Meeting - Order of Business. At the annual meeting of
----------------------------------
shareholders, the order of business shall be as follows:
(a) Call to order.
(b) Proof of notice of meeting (or filing of waiver).
(c) Reading of minutes of last annual meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Election of directors.
(g) Other business.
-1-
<PAGE>
4. Special Meetings. Special meetings of the shareholders for any
----------------
purpose may be called at any time by the President, the Board of Directors or
the holders of at least ten percent (10%) of all the votes entitled to be cast
on any issue proposed to be considered at such special meeting in accordance
with RCW 23B.07.020. Special shareholders' meetings shall be held at the
Corporation's principal executive office or at such other place as shall be
identified in the notice of such meeting.
5. Notice.
------
(a) Except as provided in subsection (c) hereunder, notice of the
date, time and place of the annual meeting of shareholders shall be given by
delivering personally or by mailing a written or printed notice of the same, not
less than ten (10) days, and not more than sixty (60) days, prior to the meeting
to each shareholder of record entitled to vote at such meeting.
(b) Except as provided in subsection (c) hereunder, written or
printed notice of each special meeting of shareholders shall be given not less
than ten (10) days and not more than sixty (60) days prior to the meeting. Such
notice shall state the date, time and place of such meeting, and the purpose or
purposes for which the meeting is called, and shall be delivered personally, or
mailed to each shareholder of record entitled to vote at such meeting.
(c) Notice of a shareholders' meeting at which the shareholders
will be called to act on the election of one or more directors, an amendment to
the articles of incorporation, a plan of merger or share exchange, a proposed
sale of assets other than in the regular course of business or the dissolution
of the Corporation shall be given not less than twenty (20) days and not more
than sixty (60) days before the meeting date.
6. Record Date. For the purpose of determining shareholders
-----------
entitled to notice of or to vote at any meeting of shareholders, or at any
adjournment thereof, or entitled to receive dividends or distributions, the
Board of Directors shall fix in advance a record date for any such determination
of shareholders, such date to be not more than seventy (70) days and, in case of
a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.
7. Shareholders' List. After fixing a record date for a
------------------
shareholders' meeting, the Corporation shall prepare an alphabetical list of the
names of all its shareholders on the record date who are entitled to notice of a
shareholders' meeting. Such list shall be arranged by voting group, and within
each voting group by class or series of shares, and show the address of and
number of shares held by each shareholder. The shareholders' list shall be kept
on file at the registered office of the Corporation for a period beginning ten
days prior to such meeting and shall be kept open at the time and place of such
meeting for the inspection by any shareholder, or any shareholder's agent or
attorney.
8. Quorum. Except as otherwise required by law, a quorum at any
------
annual or special meeting of shareholders shall consist of shareholders
representing, either in person or by proxy, a majority of the votes entitled to
be cast on the matter by each voting group.
9. Voting.
------
(a) Except as otherwise provided in the articles of
incorporation, as they may be amended or restated from time to time (as so
amended or restated, the "Articles of Incorporation") and subject to the
provisions of the laws of the State of Washington, each outstanding share,
regardless of class, is entitled to one vote on each matter voted on at a
shareholders' meeting.
(b) If a quorum exists, action on a matter, other than the
election of directors, is approved by a voting group if the votes cast within
the voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the question is one which by express provision
of law, of the Articles of Incorporation or of these Bylaws a greater number of
affirmative votes is required.
-2-
<PAGE>
(c) Unless otherwise provided in the Articles of Incorporation,
in any election of directors the candidates elected are those receiving the
largest numbers of votes cast by the shares entitled to vote in the election, up
to the number of directors to be elected by such shares.
10. Proxies. A shareholder may vote either in person or by
-------
appointing a proxy by signing an appointment form, either personally or by the
shareholder's attorney-in-fact or agent. An appointment of a proxy is effective
when received by the person authorized to tabulate votes for the Corporation.
An appointment of a proxy is valid for eleven months unless a longer period is
expressly provided in the appointment form.
11. Action by Shareholders Without a Meeting. Any action required or
----------------------------------------
which may be taken at a meeting of shareholders of the Corporation may be taken
without a meeting if the action is taken by all the shareholders entitled to
vote on the action. The action must be evidenced by one or more written
consents describing the action taken, signed by all the shareholders entitled to
vote on the action, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporation's records. Action taken in accordance
with this section shall be effective when all written consents have been
delivered to the Corporation, unless the consent specifies a later effective
date. If, after these Bylaws are adopted, the Washington Business Corporation
Act is amended to authorize shareholder action without a meeting by less than
unanimous vote, then such action may be taken by the fewest number of votes
permitted by the Washington Business Corporation Act, as so amended.
12. Waiver of Notice. A written waiver of any notice required to be
----------------
given to any shareholder, signed by the person or persons entitled to such
notice, whether before or after the time stated therein for the meeting, shall
be deemed the giving of such notice by the Corporation, provided that such
waiver has been delivered to the Corporation for inclusion in the minutes or
filing with the Corporation's records. A shareholder's attendance at a meeting
waives any notice required, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
13. Action of Shareholders by Communications Equipment. Shareholders
--------------------------------------------------
may participate in any meeting of shareholders by any means of communication by
which all persons participating in the meeting can hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
ARTICLE III
Shares of Stock
---------------
1. Issuance of Shares. No shares of the Corporation shall be issued
------------------
unless authorized by the Board of Directors. Such authorization shall include
the number of shares to be issued and the consideration to be received. Shares
may but need not be represented by certificates. Unless otherwise provided by
law, the rights and obligations of shareholders are identical whether or not
their shares are represented by certificates.
2. Certificated Shares. If shares are represented by certificates,
-------------------
certificates of stock shall be issued in numerical order, and each shareholder
shall be entitled to a certificate signed, either manually or in facsimile, by
the President, or a Vice President, and the Secretary, and such certificate may
bear the seal of the Corporation or a facsimile thereof. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date of
issue.
-3-
<PAGE>
At a minimum each certificate of stock shall state:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the
State of Washington;
(c) the name of the person to whom the certificate is issued;
(d) the number and class of shares and the designation of the
series, if any, the certificate represents; and
(e) if the Corporation is authorized to issue different classes
of shares or different series within a class, the
designations, relative rights, preferences and limitations
applicable to each class and the variations in rights,
preferences and limitations determined for each series, and
the authority of the Board of Directors to determine
variations for future series, must be summarized either on
the front or back of the certificate. Alternatively, the
certificate may state conspicuously on its front or back
that the Corporation will furnish the shareholder this
information without charge on request in writing.
In case of any mutilation, loss or destruction of any certificate of
stock, another certificate may be issued in its place on proof of such
mutilation, loss or destruction. The Board of Directors may impose conditions
on such issuance and may require the giving of a satisfactory bond or indemnity
to the Corporation in such sum as it might determine or establish such other
procedures as it deems necessary or appropriate.
3. Uncertificated Shares.
---------------------
(a) Unless the Articles of Incorporation provide otherwise, the
Board of Directors may authorize the issue of any of the Corporation's classes
or series of shares without certificates. This authorization does not affect
shares already represented by certificates until they are surrendered to the
Corporation.
(b) Within a reasonable time after the issuance of shares without
certificates, the Corporation shall send the shareholder a complete written
statement of the information required on certificates as provided in Article
III, Section 2 of these Bylaws.
4. Transfers.
---------
(a) Transfers of stock shall be made only upon the stock transfer
records of the Corporation, which records shall be kept at the registered office
of the Corporation or at its principal place of business, or at the office of
its transfer agent or registrar. The Board of Directors may, by resolution,
open a share register in any state of the United States, and may employ an agent
or agents to keep such register and to record transfers of shares therein.
(b) Shares of certificated stock shall be transferred by delivery
of the certificates therefor, accompanied either by an assignment in writing on
the back of the certificate or an assignment separate from certificate, or by a
written power of attorney to sell, assign and transfer the same, signed by the
holder of said certificate. No shares of certificated stock shall be transferred
on the records of the Corporation until the outstanding certificates therefor
have been surrendered to the Corporation or to its transfer agent or registrar.
(c) Shares of uncertificated stock shall be transferred upon
receipt by the Corporation of a written request for transfer signed by the
shareholder. Within a reasonable time after the transfer of shares without
certificates, the Corporation shall provide the new shareholder a complete
written statement of the information required on certificates as provided in
Article III, Section 2 of these Bylaws.
-4-
<PAGE>
5. Fractional Shares or Scrip. The Corporation may:
--------------------------
(a) issue fractions of a share;
(b) arrange for the disposition of fractional interests by the
shareholders;
(c) pay in money the value of fractions of a share; and
(d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon
the surrender of enough scrip to equal a full share.
6. Shares of Another Corporation. Shares owned by the Corporation
-----------------------------
in another corporation, domestic or foreign, may be voted by such officer, agent
or proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV
Board of Directors
------------------
1. Powers. The management of all the affairs, property and
------
interests of the Corporation shall be vested in a Board of Directors. In
addition to the powers and authorities expressly conferred upon it by these
Bylaws and by the Articles of Incorporation, the Board of Directors may exercise
all such powers of the Corporation and do all such lawful acts as are not
prohibited by statute or by the Articles of Incorporation or by these Bylaws or
as directed or required to be exercised or done by the shareholders.
2. General Standards for Directors.
-------------------------------
(a) A director shall discharge the duties of a director,
including duties as a member of a committee:
(i) in good faith;
(ii) with the care an ordinary prudent person in a like
position would exercise under similar circumstances;
and
(iii) in a manner the director reasonably believes to be in
the best interests of the Corporation.
3. Number and Term. The Board of Directors shall consist of seven
---------------
(7) persons or so many as may from time to time be designated by the then-
existing Board of Directors. Directors need not be shareholders or residents of
the State of Washington. The directors shall be classified with respect to the
time for which they severally hold office into three classes designated Class I,
Class II and Class III, as nearly equal in number as possible. Each director
shall serve for a term ending on the date of the third annual meeting of
shareholders following the annual meeting at which the director was elected;
provided, however, that each initial director in Class I shall hold office until
the annual meeting of shareholders in 2000, each initial director in Class II
shall hold office until the annual meeting of shareholders in 1999, and each
initial director in Class III shall hold office until the annual meeting of
shareholders in 1998. Notwithstanding the foregoing provisions of Section 3 of
this Article IV, each director shall serve until his or her successor is duly
elected and qualified or until his or her death, resignation or removal.
4. Change of Number. The number of directors may at any time be
----------------
increased or decreased by resolution of either the shareholders or directors at
any annual, special or regular meeting; provided, that no decrease in the number
--------
of directors shall have the effect of shortening the term of any incumbent
director, except as provided in Sections 6 and 7 of this Article IV.
5. Vacancies. All vacancies in the Board of Directors, whether
---------
caused by resignation, death, removal or otherwise, may be filled by the
affirmative vote of a majority of the remaining directors in office though
-5-
<PAGE>
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall hold office until the next shareholders' meeting at which
directors are elected and until his or her successor is elected and qualified.
6. Resignation. A director may resign at any time by delivering
-----------
written notice to the Board of Directors, the President or the Secretary. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
7. Removal of Directors. At a special meeting of shareholders
--------------------
called expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed, with or without cause, by the affirmative vote of the
holders of at least two-thirds (2/3) of shares then present and entitled to vote
at an election of such directors. A director or directors may be removed only
if the number of votes cast to remove the director exceeds the number of votes
cast not to remove the director. The notice of such special meeting must state
that the purpose, or one of the purposes, of the meeting is removal of the
director or directors, as the case may be.
8. Regular Meetings. Regular meetings of the Board of Directors or
----------------
any committee may be held without notice at the principal place of business of
the Corporation or at such other place or places, either within or without the
State of Washington, as the Board of Directors or such committee, as the case
may be, may from time to time designate. The annual meeting of the Board of
Directors shall be held without notice immediately after adjournment of the
annual meeting of shareholders.
9. Special Meetings.
----------------
(a) Special meetings of the Board of Directors may be called at
any time by the President or by any director, to be held at the principal place
of business of the Corporation or at such other place or places as the Board of
Directors or the person or persons calling such meeting may from time to time
designate. Notice of all special meetings of the Board of Directors, stating the
date, time and place thereof, shall be given at least three (3) days prior to
the date of the meeting, in accordance with the provisions set forth in Article
VII of these Bylaws. Such notice need not specify the business to be transacted
at, or the purpose of, the meeting.
(b) Special meetings of any committee of the Board of Directors
may be called at any time by such person or persons and with such notice as
shall be specified for such committee by the Board of Directors, or in the
absence of such specification, in the manner and with the notice required for
special meetings of the Board of Directors.
10. Waiver of Notice. A director may waive any notice required by
----------------
law, by the Articles of Incorporation or by these Bylaws before or after the
time stated for the meeting, and such waiver shall be equivalent to the giving
of such notice. Such waiver must be in writing, signed by the director entitled
to such notice and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. A director's attendance at or participation
in a meeting shall constitute a waiver of any required notice to the director of
the meeting unless the director at the beginning of the meeting, or promptly
upon the director's arrival, objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
11. Quorum. A majority of the full Board of Directors shall be
------
necessary at all meetings to constitute a quorum for the transaction of
business. If a quorum is present when a vote is taken, the affirmative vote of
a majority of directors present is the act of the Board of Directors.
-6-
<PAGE>
12. Registering Dissent. A director who is present at a meeting of
-------------------
the Board of Directors at which action on a corporate matter is taken is deemed
to have assented to such action unless:
(a) the director objects at the beginning of the meeting, or
promptly upon the director's arrival, to the holding of, or
transaction of business at, the meeting;
(b) the director's dissent or abstention from the action is
entered in the minutes if the meeting; or
(c) the director delivers written notice of the director's
dissent or abstention to the presiding officer of the meeting
before its adjournment or to the Corporation within a
reasonable time after adjournment of the meeting. The right
to dissent or abstain is not available to a director who
voted in favor of the action taken.
13. Action by Directors Without a Meeting.
-------------------------------------
(a) Any action required or permitted to be taken at a meeting of
the Board of Directors, or of a committee thereof, may be taken without a
meeting if the action is taken by all members of the Board of Directors. The
action must be evidenced by one or more written consents setting forth the
action taken, signed by each of the directors, or by each of the members of the
committee, as the case may be, either before or after the action taken, and
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's records.
(b) Action taken under this section is effective when the last
director signs the consent, unless the consent specifies a later effective date.
14. Participation by Means of Communications Equipment. Any or all
--------------------------------------------------
directors may participate in a regular or special meeting of the Board of
Directors (or of a committee thereof) by, or may conduct the meeting through the
use of, any means of communication by which all directors participating can hear
each other during the meeting.
15. Committees.
----------
(a) The Board of Directors, by resolution adopted by a majority
of the full Board of Directors, may create one or more committees of directors.
Each committee must have two or more members who serve at the pleasure of the
Board of Directors. To the extent specified by the Board of Directors, each
committee may exercise the authority of the Board of Directors, except that no
committee shall have the authority to:
(i) authorize or approve a distribution except according to
a general formula or method prescribed by the Board of
Directors;
(ii) approve or propose to shareholders action that by law
is required to be approved by shareholders;
(iii) fill vacancies on the Board of Directors or any of its
committees;
(iv) amend the Articles of Incorporation;
(v) adopt, amend or repeal these Bylaws;
(vi) approve a plan of merger not requiring shareholder
approval; or
(vii) authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and
relative rights, preferences and limitations of a class
or series of shares, except that the Board of Directors
may authorize a committee (or a senior executive
officer of the Corporation) to do so within limits
specifically prescribed by the Board of Directors.
-7-
<PAGE>
(b) The creation of, delegation of authority to or action by a
committee does not alone constitute compliance by a director with the standards
of conduct required by the Washington Business Corporation Act and these Bylaws.
16. Remuneration. By resolution of the Board of Directors, directors
------------
may be remunerated in cash and/or by the grant of options to purchase shares of
the Corporation's stock, and a fixed sum and expenses of attendance, if any, may
be allowed for attendance at each regular or special meeting of the Board of
Directors or of a committee thereof; provided, that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
17. Notice of Nomination.
--------------------
(a) Nominations for the election of directors may be made by the
Board of Directors or by any shareholder entitled to vote for the election of
directors. Notwithstanding the provisions of Article VII, such nominations shall
be made by notice in writing, delivered or mailed by first class United States
mail, postage pre-paid, to the Secretary of the Corporation not less than 14
days nor more than 50 days prior to any meeting of the shareholders called for
the election of directors; provided, however, that if less than 21 days' notice
-------- -------
of the meeting is given to the shareholders, such written notice shall be
delivered or mailed, as prescribed above, to the Secretary of the Corporation
not later than 5:00 p.m. on the seventh day following the day on which notice of
the meeting was mailed to the shareholders. Notice of nominations which are
proposed by the Board of directors shall be given by the Chairman on behalf of
the Board.
(b) Each notice under subsection (a) shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee and (iii) the number of shares of stock of the Corporation which
are beneficially owned by each such nominee.
(c) The Chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and should he so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
(d) The provisions of this Section 17 of Article IV may be
amended, altered, changed or repealed only by the affirmative vote of the
holders of at least two-thirds (2/3) of the shares present and entitled to vote
at an election of directors.
ARTICLE V
Officers
--------
1. Designations. The officers of the Corporation shall be a
------------
President, a Secretary and, at the discretion of the Board of Directors, one or
more Vice-Presidents and a Treasurer. The Board of Directors shall appoint all
officers. Any two or more offices may be held by the same individual.
The Board of Directors, in its discretion, may elect a Chairman from
among its members to serve as Chairman of the Board of Directors, who, when
present, shall preside at all meetings of the Board of Directors and the
shareholders, and who shall have such other powers as the Board may determine.
2. Appointment and Term of Office. The officers of the Corporation
------------------------------
shall be appointed annually by the Board of Directors at the first meeting of
the Board of Directors held after each annual meeting of the shareholders. Each
officer shall hold office until a successor shall have been appointed and
qualified, or until such officer's earlier death, resignation or removal.
-8-
<PAGE>
3. Powers and Duties. If the Board appoints persons to fill the
-----------------
following positions, such officers shall have the power and duties set forth
below:
(a) The President. The President of the Corporation shall be the
-------------
Chief Executive Officer of the Corporation and, subject to the direction and
control of the Board of Directors, shall have general control and management of
the business affairs and policies of the Corporation. The President shall act
as liaison from and as spokesman for the Board of Directors. The President
shall participate in long-range planning for the Corporation and shall be
available to the other officers of the Corporation for consultation. The
President shall possess power to sign all certificates, contracts and other
instruments of the Corporation. Unless a Chairman of the Board of Directors has
been appointed and is present, the President shall preside at all meetings of
the shareholders and of the Board of Directors. The President shall perform all
such other duties as are incident to the office of President or are properly
required by the Board of Directors.
(b) Vice-Presidents. During the absence or disability of the
---------------
President, the Executive or Senior Vice-Presidents, if any, and the Vice-
Presidents, if any, in the order designated by the Board of Directors, shall
exercise all the functions of the President. Each Vice-President shall have
such powers and discharge such duties as may be assigned from time to time by
the Board of Directors.
(c) The Secretary. The Secretary shall issue notices for all
-------------
meetings, except for notices for special meetings of the shareholders and
special meetings of the directors which are called by the requisite percentage
of shareholders or number of directors, shall keep minutes of all meetings,
shall have charge of the seal and the Corporation's books, and shall make such
reports and perform such other duties as are incident to the office of
Secretary, or are properly required of him or her by the Board of Directors.
(d) The Treasurer. The Treasurer shall have the custody of all
-------------
moneys and securities of the Corporation and shall keep regular books of
account. The Treasurer shall disburse the funds of the Corporation in payment of
the just demands against the Corporation or as may be ordered by the Board of
Directors, taking proper vouchers or receipts for such disbursements, and shall
render to the Board of Directors from time to time as may be required an account
of all transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall perform such other duties incident to his or
her office or that are properly required of him or her by the Board of
Directors.
4. Standards of Conduct for Officers.
---------------------------------
(a) An officer with discretionary authority shall discharge such
officer's duties under that authority:
(i) in good faith;
(ii) with the care an ordinary prudent person in a like
position would exercise under similar circumstances;
and
(iii) in a manner the officer reasonably believes to be in
the best interests of the Corporation.
5. Delegation. In the case of absence or inability to act of any
----------
officer of the Corporation and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may in its sole discretion select.
6. Vacancies. Vacancies in any office arising from any cause may be
---------
filled by the Board of Directors at any regular or special meeting of the Board.
7. Other Officers. The Board of Directors, or a duly appointed
--------------
officer to whom such authority has been delegated by Board resolution, may
appoint such other officers and agents as it shall deem
-9-
<PAGE>
necessary or expedient, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
8. Resignation. An officer may resign at any time by delivering
-----------
notice to the Corporation. Such notice shall be effective when delivered unless
the notice specifies a later effective date. Any such resignation shall not
affect the Corporation's contract rights, if any, with the officer.
9. Removal. Any officer elected or appointed by the Board of
-------
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
10. Salaries and Contract Rights. The salaries, if any, of the
----------------------------
officers shall be fixed from time to time by the Board of Directors. The
appointment of an officer shall not of itself create contract rights.
11. Bonds. The Board of Directors may, by resolution, require any
-----
and all of the officers to give bonds to the Corporation, with sufficient surety
or sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
Distributions and Finance
-------------------------
1. Distributions. The Board of Directors may authorize and the
-------------
Corporation may make distributions to its shareholders; provided that no
distribution may be made if, after giving it effect, either:
(a) The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The Corporation's total assets would be less than the sum of
its total liabilities plus the amount which would be needed,
if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are
superior to those receiving the distribution.
The Board of Directors may authorize distributions to holders of
record at the close of business on any business day prior to the date on which
the distribution is made. If the Board of Directors does not fix a record date
for determining shareholders entitled to a distribution, the record date shall
be the date on which the Board of Directors authorizes the distribution.
2. Measure of Effect of a Distribution. For purposes of determining
-----------------------------------
whether a distribution may be authorized by the Board of Directors and paid by
the Corporation under Article VI, Section 1 of these Bylaws, the effect of the
distribution is measured:
(a) In the case of a distribution of indebtedness, the terms of
which provide that payment of principal and interest are made
only if and to the extent that payment of a distribution to
shareholders could then be made under this section, each
payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the
payment is actually made; or
(b) In the case of any other distribution:
(i) if the distribution is by purchase, redemption, or
other acquisition of the Corporation's shares, the
effect of the distribution is measured as of the
earlier of the date any money or other property is
transferred or debt
-10-
<PAGE>
incurred by the Corporation, or the date the
shareholder ceases to be a shareholder with respect to
the acquired shares;
(ii) if the distribution is of an indebtedness other than
described in subsection 2(a) and (b)(i) of this
section, the effect of the distribution is measured as
of the date the indebtedness is distributed; and
(iii) in all other cases, the effect of the distribution is
measured as of the date the distribution is authorized
if payment occurs within 120 days after the date of
authorization, or the date the payment is made if it
occurs more than 120 days after the date of
authorization.
3. Depositories. The moneys of the Corporation shall be deposited
------------
in the name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
Notices
-------
Except as may otherwise be required by law, any notice to any
shareholder or director must be in writing and may be transmitted by: mail,
private carrier or personal delivery; telegraph or teletype; or telephone, wire
or wireless equipment which transmits a facsimile of the notice. Written notice
by the Corporation to its shareholders shall be deemed effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Except as set forth in the previous sentence, written notice shall be deemed
effective at the earliest of the following: (i) when received; (ii) five days
after its deposit in the United States mail, as evidenced by the postmark, if
mailed with first-class postage, prepaid and correctly addressed; (iii) on the
date shown on the return receipt, if sent by registered or certified mail,
return receipt requested, and receipt is signed by or on behalf of the
addressee; or (iv) if sent to a shareholder's address, telephone number, or
other number appearing on he records of the Corporation, when dispatched by
telegraph, teletype or facsimile equipment.
ARTICLE VIII
Seal
----
The Corporation may adopt a corporate seal which seal shall be in such
form and bear such inscription as may be adopted by resolution of the Board of
Directors.
ARTICLE IX
Indemnification of Officers,
----------------------------
Directors, Employees and Agents
-------------------------------
1. Definitions. For purposes of this Article:
-----------
(a) "Corporation" includes any domestic or foreign predecessor
entity of the Corporation in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of
the Corporation or an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise. A
director is considered to be serving an employee benefit plan at
-11-
<PAGE>
the Corporation's request if the director's duties to the Corporation also
impose duties on, or otherwise involve services by, the director to the plan or
to participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a director.
(c) "Expenses" include counsel fees.
(d) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including an excise tax assessed with respect to an
employee benefit plan, or reasonable expenses incurred with respect to a
proceeding.
(e) "Official capacity" means: (i) When used with respect to a
director, the office of director in the Corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in Section 6 of
this Article IX, the office in the Corporation held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the Corporation. "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust,
employee benefit plan, or other enterprise.
(f) "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
2. Right to Indemnification.
------------------------
(a) The Corporation shall indemnify any person who was or is a
party to any proceeding, whether or not brought by or in the right of the
Corporation, by reason of the fact that such person is or was a director of the
Corporation, against all reasonable expenses incurred by the director in
connection with the proceeding.
(b) Except as provided in subsection (e) of this Section 2, the
Corporation shall indemnify an individual made a party to a proceeding because
the individual is or was a director against liability incurred in the proceeding
if:
(i) The individual acted in good faith; and
(ii) The individual reasonably believed:
(A) In the case of conduct in the individual's official
capacity with the Corporation, that the
individual's conduct was in the Corporation's best
interests; and
(B) In all other cases, that the individual's conduct
was at least not opposed to the Corporation's best
interests; and
(iii) In the case of any criminal proceeding, the individual
had no reasonable cause to believe the individual's
conduct was unlawful.
(c) A director's conduct with respect to an employee benefit plan
for a purpose the director reasonably believed to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (b)(ii) of this Section 2.
(d) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the standard of
conduct described in this Section.
-12-
<PAGE>
(e) The Corporation shall not indemnify a director under this
Section 2:
(i) In connection with a proceeding by or in the right of
the Corporation in which the director was adjudged
liable to the Corporation; or
(ii) In connection with any other proceeding charging
improper personal benefit to the director, whether or
not involving action in the director's official
capacity, in which the director was adjudged liable on
the basis that personal benefit was improperly received
by the director.
(f) Indemnification under this Article IX, Section 2 in
connection with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
3. Advance for Expenses.
--------------------
(a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding and in advance of any determination and
authorization of indemnification pursuant to Section 5 of this Article IX if:
(i) The director furnishes the Corporation a written
affirmation of the director's good faith belief that the
director has met the standard of conduct described in
Section 2 of this Article IX; and
(ii) The director furnishes the Corporation a written
undertaking, executed personally or on the director's
behalf, to repay the advance if it is ultimately
determined that the director did not meet the standard
of conduct.
(b) The undertaking required by subsection (a)(i) of this Section
3 must be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment.
4. Court-ordered Indemnification. A director of the Corporation who
-----------------------------
is a party to a proceeding may apply for indemnification or advance of expenses
to the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court after giving any notice
the court considers necessary may order indemnification or advance of expenses
if it determines:
(a) The director is entitled to mandatory indemnification
pursuant to RCW 23B.08.520, in which case the court shall also order the
Corporation to pay the director's reasonable expenses incurred to obtain court-
ordered indemnification;
(b) The director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the standard of conduct set forth in Section 2 of this Article IX,
or was adjudged liable as described in Section 2(e) of this Article IX, but if
the director was adjudged so liable, the director's indemnification is limited
to reasonable expenses incurred; or
(c) In the case of an advance of expenses, the director is
entitled pursuant to the Articles of Incorporation, Bylaws, or any applicable
resolution or contract, to payment or reimbursement of the director's reasonable
expenses incurred as a party to the proceeding in advance of final disposition
of the proceeding.
5. Determination and Authorization of Indemnification.
--------------------------------------------------
-13-
<PAGE>
(a) The Corporation shall not indemnify a director under this
Article IX unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section 2(b)
of this Article IX.
(b) The determination shall be made:
(i) By the Board of Directors by majority vote of a quorum
consisting of directors not at the time parties to the
proceeding;
(ii) If a quorum cannot be obtained under (i) of this
subsection, by majority vote of a committee duly
designated by the Board of Directors, in which
designation directors who are parties may participate,
consisting solely of two or more directors not at the
time parties to the proceeding;
(iii) By special legal counsel:
(A) Selected by the Board of Directors or its committee
in the manner prescribed in (i) or (ii) of this
subsection; or
(B) If a quorum of the Board of Directors cannot be
obtained under (i) of this subsection and a
committee cannot be designated under (ii) of this
subsection, selected by majority vote of the full
Board of Directors, in which selection directors
who are parties may participate; or
(iv) By the shareholders, but shares owned by or voted under
the control of directors who are at the time parties to
the proceeding may not be voted on the determination.
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (b)
(iii) of this Section to select counsel.
6. Indemnification of Officers
---------------------------
(a) An officer of the Corporation who is not a director shall be
indemnified pursuant to RCW 23B.08.520, and is entitled to apply for court-
ordered indemnification under Section 4 of this Article IX, in each case to the
same extent as a director; and
(b) The Corporation shall indemnify and advance expenses to an
officer who is not a director to the same extent as to a director under this
Article IX.
(c) The Corporation may also indemnify and advance expenses to an
officer who is not a director to the extent, consistent with law, that may be
provided by a general or specific action of its Board of Directors, or contract.
7. Indemnification of Employees and Agents.
---------------------------------------
(a) The Corporation may indemnify employees and agents of the
Corporation pursuant to RCW 23B.08.520, and may afford the right to such
employees or agents to apply for court-ordered indemnification under Section 4
of this Article IX, in each case to the same extent as a director; and
-14-
<PAGE>
(b) The Corporation may indemnify and advance expenses to an
employee or agent of the Corporation who is not a director to the same extent as
to a director under this Article IX.
(c) The Corporation may also indemnify and advance expenses to an
employee or agent who is not a director to the extent, consistent with law, that
may be provided by a general or specific action of its Board of Directors, or
contract.
8. Insurance. The Corporation may purchase and maintain insurance
---------
on behalf of an individual who is or was a director, officer, employee, or agent
of the Corporation, or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the Corporation would have power to indemnify
the individual against the same liability under this Article IX.
9. Indemnification as a Witness. This Article IX does not limit a
----------------------------
Corporation's power to pay or reimburse expenses incurred by a director in
connection with the director's appearance as a witness in a proceeding at a time
when the director has not been made a named defendant or respondent to the
proceeding.
10. Report to Shareholders. If the Corporation indemnifies or
----------------------
advances expenses to a director pursuant to this Article IX in connection with a
proceeding by or in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
11. Shareholder Authorized Indemnification.
--------------------------------------
(a) If authorized by a resolution adopted or ratified, before or
after the event, by the shareholders of the Corporation, the Corporation shall
have the power to indemnify or agree to indemnify a director made a party to a
proceeding, or obligate itself to advance or reimburse expenses incurred in a
proceeding, without regard to the limitations contained in this Article IX
(other than this Section 11); provided that no such indemnity shall indemnify
any director from or on account of:
(i) Acts or omissions of the director finally adjudged to
be intentional misconduct or a knowing violation of
law;
(ii) Conduct of the director finally adjudged to be an
unlawful distribution under RCW 23B.08.310; or
(iii) Any transaction with respect to which it was finally
adjudged that such director personally received a
benefit in money, property, or services to which the
director was not legally entitled.
(b) Unless a resolution adopted or ratified by the shareholders
of the Corporation provides otherwise, any determination as to any indemnity or
advance of expenses under subsection (a) of this Section 11 shall be made in
accordance with Section 5 of this Article IX.
12. Validity of Indemnification. A provision addressing the
----------------------------
Corporation's indemnification of or advance for expenses to directors that is
contained in these Bylaws, a resolution of its shareholders or Board of
Directors, or in a contract or otherwise, is valid only if and to the extent the
provision is consistent with RCW 23B.08.500 through 23B.08.580.
-15-
<PAGE>
13. Interpretation. The provisions contained in this Article IX
--------------
shall be interpreted and applied to provide indemnification to directors,
officers, employees and agents of the Corporation to the fullest extent allowed
by applicable law, as such law may be amended, interpreted and applied from time
to time.
14. Savings Clause. If this Article IX or any portion thereof shall
--------------
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director as to reasonable expenses
and liabilities with respect to any proceeding, whether or not brought by or in
the right of the Corporation, to the full extent permitted by any applicable
portion of this Article IX that shall not have been invalidated, or by any other
applicable law.
15. Non-exclusivity of Rights. The right to indemnification under
-------------------------
this Article IX for directors, officers, employees and agents shall not be
exclusive of any other right which any person may have, or hereafter acquire,
under any statute, provision of the Articles of Incorporation, Bylaws, other
agreement, vote of shareholders or disinterested directors, insurance policy,
principles of common law or equity, or otherwise.
ARTICLE X
Books and Records
-----------------
The Corporation shall maintain appropriate accounting records and
shall keep as permanent records minutes of all meetings of its shareholders and
Board of Directors, a record of all actions taken by the shareholders or the
Board of Directors without a meeting and a record of all actions taken by a
committee of the Board of Directors. In addition, the Corporation shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.
The Corporation shall keep a copy of the following records at its
principal office:
1. The Articles or Restated Articles of Incorporation and all
amendments thereto currently in effect;
2. The Bylaws or Restated Bylaws and all amendments thereto
currently in effect;
3. The minutes of all shareholders' meetings, and records of all
actions taken by shareholders without a meeting, for the past three years;
4. Its financial statements for the past three years, including
balance sheets showing in reasonable detail the financial condition of the
Corporation as of the close of each fiscal year, and an income statement showing
the results of its operations during each fiscal year prepared on the basis of
generally accepted accounting principles or, if not, prepared on a basis
explained therein;
5. All written communications to shareholders generally within the
past three years;
6. A list of the names and business addresses of its current
directors and officers; and
7. Its most recent annual report delivered to the Secretary of State
of Washington.
ARTICLE XI
Amendments
----------
-16-
<PAGE>
1. By Shareholders. These Bylaws may be amended or repealed by the
---------------
shareholders in the manner set forth in Article II Section 9 of these Bylaws at
any regular or special meeting of the shareholders.
2. By Directors. The Board of Directors shall have power to amend
------------
or repeal the Bylaws of, or adopt new bylaws for, the Corporation. However, any
such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be
subsequently changed or repealed by the holders of a majority of the stock
entitled to vote at any shareholders' meeting.
3. Emergency Bylaws. The Board of Directors may adopt emergency
----------------
Bylaws, subject to repeal or change by action of the shareholders, which shall
be operative during any emergency in the conduct of the business of the
Corporation resulting from an attack on the United States, any state of
emergency declared by the federal government or any subdivision thereof, or any
other catastrophic event.
Adopted by resolution of the Corporation's Board of Directors on April
3, 1997, and by approval of the Corporation's Shareholders on April 25, 1997.
/s/ Norbert W. Sugayan
___________________________________
Norbert W. Sugayan, Jr., Secretary
-17-
<PAGE>
Exhibit 4.3
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares and upon the
holders thereof as established, from time to time, by the Articles of
Incorporation of the Corporation and by any certificate of determination, and
the number of shares constituting each class and series and the designations
thereof, may be obtained by the holder hereof upon written request and without
charge from the Secretary of the Corporation at its corporate headquarters.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ___________________ Custodian _____________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _______________________________________________
in common (State)
UNIF TRF MIN ACT -- ____________ Custodian (until age ________________)
(Cust)
____________________________under Uniform Transfers
(Minor)
to Minors Act _____________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________________
X_________________________________________
X_________________________________________
THE SIGNATURES TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
NOTICE: UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION(BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO S.E.C. RULE 17AG-16.
<PAGE>
COMMON STOCK COMMON STOCK
[LOGO OF ARIS]
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF WASHINGTON CERTAIN DEFINITIONS
CUSIP 04040A 10 1
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, NO PAR VALUE, OF
---------------------- -----------------------
--------------------------- ARIS CORPORATION ----------------------------
---------------------- -----------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
/s/ Herbert W. Suyayan, Jr. /s/ Paul Soy
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
Exhibit 5.1
[LETTERHEAD OF VAN VALKENBERG FURBER LAW GROUP P.L.L.C.]
May 28, 1997
ARIS Corporation
Fort Dent One, Suite 250
6720 Fort Dent Way
Seattle, Washington 98188-2555
Ladies and Gentlemen:
We have acted as counsel to you in connection with the proceedings for
the authorization and issuance by ARIS Corporation, a Washington corporation
(the "Company"), of up to 2,000,000 shares (the "Company Shares") and 20,800
shares (the "Selling Shareholder Shares") of the Company's common stock, without
par value per share (the "Common Stock"), together with an additional 300,000
shares of Common Stock if and to the extent the underwriters exercise an over-
allotment option granted by the Company (the "Over-Allotment Shares"), and the
preparation and filing of a registration statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), which you are filing with the Securities and Exchange
Commission with respect to the Company Shares, the Selling Shareholder Shares
and the Over-Allotment Shares (collectively, the "Shares").
We have examined the Registration Statement and such documents and
records of the Company and other documents as we have deemed necessary for the
purpose of this opinion. Based upon the foregoing, we are of the opinion that
upon the happening of the following events:
(a) the filing and effectiveness of the Registration Statement and any
amendments thereto,
(b) due execution by the Company and registration by its registrar of the
Shares,
(c) the offering and sale of the Shares as contemplated by the Registration
Statement, and
(d) receipt of the consideration required for the Shares contemplated by
the Registration Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all post-
effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the
<PAGE>
May 28, 1997
Page 2
reference to our firm in the Prospectus of the Registration Statement under the
heading "Legal Matters." In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ Van Valkenberg Furber Law Group P.L.L.C.
<PAGE>
EXHIBIT 10.2
ARIS CORPORATION
1997 STOCK OPTION PLAN
This 1997 Stock Option Plan (the "Plan") provides for the grant of options
to acquire shares of common stock, without par value (the "Common Stock") of
ARIS CORPORATION, a Washington corporation (the "Company"). Stock options
granted under this Plan are referred to herein as "Options." Options that
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), are referred to in this Plan as "Incentive Stock Options." Options
granted under this Plan that do not qualify under Section 422 of the Code are
referred to as "Non-Statutory Stock Options."
1. PURPOSES.
--------
The purposes of this Plan are (i) to retain the services of valued key
employees of the Company and non-employee advisors or consultants as the Plan
Administrator shall select in accordance with Section 3 below; (ii) to retain
the services of valued non-employee directors pursuant to the formula set forth
in Section 5(n) below; (iii) to encourage such persons to acquire a greater
proprietary interest in the Company, thereby strengthening their incentive to
achieve the objectives of the shareholders of the Company, and (iv) to serve as
an aid and inducement in the hiring or recruitment of new employees,
consultants, non-employee directors and other persons selected by the Plan
Administrator.
2. ADMINISTRATION.
--------------
This Plan shall be administered by the Board of Directors of the
Company (the "Board"), except that the Board may, in its discretion, establish a
committee composed of members of the Board to administer this Plan, which
committee (the "Committee") may be an executive, compensation or other
committee, including a separate committee especially created for this purpose.
The Committee shall have such of the powers and authority vested in the Board
hereunder as the Board may delegate to it (including the power and authority to
interpret any provision of this Plan or of any Option). The members of any such
Committee shall serve at the pleasure of the Board. The Board, and/or the
Committee if one has been established by the Board, are referred to in this Plan
as the "Plan Administrator."
Following registration of any of the Company's securities under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Plan Administrator shall not take any action which is not in full compliance
with the exemption from Section 16(b) of the Exchange Act provided by Rule 16b-
3, as amended, or any successor rule or rules, and any other rules or
regulations of the Securities and Exchange Commission, the Nasdaq National
Market or any other applicable regulatory authorities, and any such action shall
be void and of no effect.
Except as limited by Section 5(n) below, and subject to the provisions
of this Plan, and with a view to effecting its purpose, the Plan Administrator
shall have sole authority, in its absolute discretion, to (i) construe and
interpret this Plan; (ii) define the terms used in this Plan; (iii) prescribe,
amend and rescind rules and regulations relating to this Plan; (iv) correct any
defect, supply any omission or reconcile any inconsistency in this Plan; (v)
determine the individuals to whom Options shall be granted under this Plan and
whether the Option is an Incentive Stock Option or a Non-Statutory Stock Option;
(vi) determine the time or times at which Options shall be granted under this
Plan; (vii) determine the number of shares of Common Stock subject to each
Option, the exercise price of each
-1-
<PAGE>
Option, the duration of each Option and the times at which each Option shall
become exercisable; (viii) determine all other terms and conditions of Options;
and (ix) make all other determinations necessary or advisable for the
administration of this Plan. All decisions, determinations and interpretations
made by the Plan Administrator shall be binding and conclusive on all
participants in this Plan and on their legal representatives, heirs and
beneficiaries.
3. ELIGIBILITY.
-----------
Incentive Stock Options may be granted to any individual who, at the
time the Option is granted, is an employee of the Company or any Related
Corporation (as defined below), including employees who are directors of the
Company ("Employees"). Non-Statutory Stock Options may be granted to Employees
and non-employee advisors and consultants as the Plan Administrator shall
select, and to non-employee directors of the Company pursuant to the formula set
forth in Section 5(n) below. Options may be granted in substitution for
outstanding Options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization between
such other corporation and the Company or any subsidiary of the Company. Options
also may be granted in exchange for outstanding Options. Any person to whom an
Option is granted under this Plan is referred to as an "Optionee."
As used in this Plan, the term "Related Corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock of one of the other
corporations in such chain. When referring to a parent corporation, the term
"Related Corporation" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of
granting of the Option, each of the corporations other than the Company owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock of one of the other corporations in such chain.
4. STOCK.
-----
The Plan Administrator is authorized to grant Options to acquire up to
a total of Two Million (2,000,000) shares of the Company's authorized but
unissued, or reacquired, Common Stock, less that number of shares that have been
granted and have not subsequently become available for future grant under the
ARIS Corporation 1995 Stock Option Plan. The number of shares with respect to
which Options may be granted hereunder is subject to adjustment as set forth in
Section 5(m) hereof. If any outstanding Option expires or is terminated for any
reason, the shares of Common Stock allocable to the unexercised portion of such
Option may again be subject to an Option to the same Optionee or to a different
person eligible under Section 3 of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Plan Administrator (the "Agreement"). Agreements may
contain such additional provisions, not inconsistent with this Plan, as the Plan
Administrator in its discretion may deem advisable. All Options also shall
comply with the following requirements:
-2-
<PAGE>
(a) Number of Shares and Type of Option.
-----------------------------------
Each Agreement shall state the number of shares of Common Stock
to which it pertains and whether the Option is intended to be an Incentive Stock
Option or a Non-Statutory Stock Option. In the absence of action to the contrary
by the Plan Administrator in connection with the grant of an Option, all Options
shall be Non-Statutory Stock Options. The aggregate fair market value
(determined at the Date of Grant, as defined below) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (granted under this Plan and all other Incentive Stock
Option plans of the Company, a Related Corporation or a predecessor corporation)
shall not exceed $100,000, or such other limit as may be prescribed by the Code
as it may be amended from time to time. Any Option which exceeds the annual
limit shall not be void but rather shall be a Non-Statutory Stock Option.
(b) Date of Grant.
-------------
Each Agreement shall state the date the Plan Administrator has
deemed to be the effective date of the Option for purposes of, and in accordance
with, this Plan (the "Date of Grant").
(c) Option Price.
------------
Each Agreement shall state the price per share of Common Stock at
which it is exercisable. The exercise price shall be fixed by the Plan
Administrator at whatever price the Plan Administrator may determine in the
exercise of its sole discretion; provided, that the per share exercise price for
--------
any Option granted following the effective date of registration of any of the
Company's securities under Section 12 of the Securities Exchange Act of 1934
shall not be less than the fair market value per share of the Common Stock at
the Date of Grant as determined by the Plan Administrator in good faith;
provided further, that the per share exercise price for an Incentive Stock
- -------- -------
Option shall not be less than the fair market value per share of the Common
Stock at the Date of Grant as determined by the Plan Administrator in good
faith; provided further, that with respect to Incentive Stock Options granted to
-------- -------
greater-than-10 percent shareholders of the Company (as determined with
reference to Section 424(d) of the Code), the exercise price per share shall not
be less than 110 percent of the fair market value per share of the Common Stock
at the Date of Grant; and, provided further, that Incentive Stock Options
-------- -------
granted in substitution for outstanding Options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted Option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur.
(d) Duration of Options.
-------------------
At the time of the grant of the Option, the Plan Administrator
shall designate, subject to paragraph 5(g) below, the expiration date of the
Option, which date shall not be later than 10 years from the Date of Grant in
the case of Incentive Stock Options; provided, that the expiration date of any
--------
Incentive Stock Option granted to a greater-than-10 percent shareholder of the
Company (as determined with reference to Section 424(d) of the Code) shall not
be later than five years from the Date of Grant. In the absence of action to the
contrary by the Plan Administrator in connection with the grant of a particular
Option, and except in the case of Incentive Stock Options as described above,
all Options granted under this Plan shall expire 10 years from the Date of
Grant.
-3-
<PAGE>
(e) Vesting Schedule.
----------------
No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Plan Administrator at the
time of grant of the Option; provided, that if no vesting schedule is specified
--------
at the time of grant, the entire Option shall vest according to the following
schedule:
<TABLE>
<CAPTION>
NUMBER OF YEARS PERCENTAGE OF TOTAL OPTION
FOLLOWING DATE OF GRANT TO BE EXERCISABLE
<S> <C>
1 20%
2 40%
3 70%
4 100%
</TABLE>
(f) Acceleration of Vesting.
-----------------------
The vesting of one or more outstanding Options may be accelerated
by the Plan Administrator at such times and in such amounts as it shall
determine in its sole discretion. The vesting of Options also shall be
accelerated under the circumstances described in Section 5(m) below.
(g) Term of Option.
--------------
Vested Options shall terminate, to the extent not previously
exercised, upon the occurrence of the first of the following events: (i) the
expiration of the Option, as designated by the Plan Administrator in accordance
with Section 5(d) above; (ii) the expiration of 90 days from the date of an
Optionee's termination of employment, contractual or director relationship with
the Company or any Related Corporation for any reason whatsoever other than
death or Disability (as defined below) unless, in the case of a Non-Statutory
Stock Option, the exercise period is extended by the Plan Administrator until a
date not later than the expiration date of the Option; or (iii) the expiration
of one year from (A) the date of death of the Optionee or (B) cessation of an
Optionee's employment, contractual or director relationship with the Company or
any Related Corporation by reason of Disability (as defined below) unless, in
the case of a Non-Statutory Stock Option, the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
Option. If an Optionee's employment, contractual or director relationship with
the Company or any Related Corporation is terminated by death, any Option held
by the Optionee shall be exercisable only by the person or persons to whom such
Optionee's rights under such Option shall pass by the Optionee's will or by the
laws of descent and distribution of the state or county of the Optionee's
domicile at the time of death. "Disability" shall mean that a person is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months. The Plan Administrator shall determine whether an
Optionee has incurred a Disability on the basis of medical evidence acceptable
to the Plan Administrator. Upon making a determination of Disability, the
Committee shall, for purposes of the Plan, determine the date of an Optionee's
termination of employment, contractual or director relationship.
-4-
<PAGE>
Unless accelerated in accordance with Section 5(f) above, unvested
Options shall terminate immediately upon termination of Optionee's employment,
contractual or director relationship with the Company or any Related Corporation
for any reason whatsoever, including death or Disability. If, in the case of an
Incentive Stock Option, an Optionee's relationship with the Company changes
(e.g., from an employee to a non-employee, such as a consultant, or a non-
- -----
employee director), such change shall not necessarily constitute a termination
of an Optionee's contractual relationship with the Company but rather the
Optionee's Incentive Stock Option shall automatically be converted into a Non-
Statutory Stock Option. For purposes of this Plan, transfer of employment
between or among the Company and/or any Related Corporation shall not be deemed
to constitute a termination of employment with the Company or any Related
Corporation. For purposes of this subsection with respect to Incentive Stock
Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
Unvested Options shall terminate immediately upon any material
breach (as determined by the Plan Administrator) by Optionee of any employment,
non-competition, non-disclosure or similar agreement by and between the Company
and Optionee.
(h) Exercise of Options.
-------------------
Options shall be exercisable, either all or in part, at any time
after vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. No portion of
any Option for less than fifty (50) shares (as adjusted pursuant to Section 5(m)
below) may be exercised; provided, that if the vested portion of any Option is
--------
less than fifty (50) shares, it may be exercised with respect to all shares for
which it is vested. Only whole shares may be issued pursuant to an Option, and
to the extent that an Option covers less than one share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice to the
Company, which notice shall specify the number of shares to be purchased, and be
accompanied by payment in the amount of the aggregate exercise price for the
Common Stock so purchased, which payment shall be in the form specified in
Section 5(i) below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to any Optionee, or to his personal
representative, until the aggregate exercise price has been paid for all shares
for which the Option shall have been exercised and adequate provision has been
made by the Optionee for satisfaction of any tax withholding obligations
associated with such exercise. During the lifetime of an Optionee, Options are
exercisable only by the Optionee.
(i) Payment upon Exercise of Option.
-------------------------------
Upon the exercise of any Option, the aggregate exercise price
shall be paid to the Company in cash or by certified or cashier's check. In
addition, upon approval of the Plan Administrator, an Optionee may pay for all
or any portion of the aggregate exercise price by (i) delivering to the Company
shares of Common Stock previously held by such Optionee, (ii) having shares
withheld from the amount of shares of Common Stock to be received by the
Optionee or (iii) delivery of an irrevocable subscription agreement obligating
the Optionee to take and pay for the shares of Common Stock to be purchased
within one year of the date of such exercise. The shares of Common Stock
received or withheld by the Company as payment for shares of Common Stock
purchased upon the exercise of Options shall have a fair market value at the
date of exercise (as determined by the
-5-
<PAGE>
Plan Administrator) equal to the aggregate exercise price (or portion thereof)
to be paid by the Optionee upon such exercise.
(j) Rights as a Shareholder.
-----------------------
An Optionee shall have no rights as a shareholder with respect to
any shares covered by an Option until such Optionee becomes a record holder of
such shares, irrespective of whether such Optionee has given notice of exercise.
Subject to the provisions of Section 5(m) hereof, no rights shall accrue to an
Optionee and no adjustments shall be made on account of dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights declared on, or created in, the Common Stock for which the
record date is prior to the date the Optionee becomes a record holder of the
shares of Common Stock covered by the Option, irrespective of whether such
Optionee has given notice of exercise.
(k) Transfer of Option.
------------------
Options granted under this Plan and the rights and privileges
conferred by this Plan may not be transferred, assigned, pledged or hypothecated
in any manner (whether by operation of law or otherwise) other than by will or
by applicable laws of descent and distribution or, with respect to Non-Statutory
Stock Options, pursuant to a domestic relations order, and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any Option or of any right
or privilege conferred by this Plan contrary to the provisions hereof, or upon
the sale, levy or any attachment or similar process upon the rights and
privileges conferred by this Plan, such Option shall thereupon terminate and
become null and void.
(l) Securities Regulation and Tax Withholding.
-----------------------------------------
(1) Shares shall not be issued with respect to an Option unless
the exercise of such Option and the issuance and delivery of such shares shall
comply with all relevant provisions of law, including, without limitation, any
applicable state securities laws, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations thereunder and the requirements of any
stock exchange upon which such shares may then be listed, and such issuance
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of such shares. The inability of the Company to obtain
from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under this Plan, or the
unavailability of an exemption from registration for the issuance and sale of
any shares under this Plan, shall relieve the Company of any liability with
respect to the non-issuance or sale of such shares.
As a condition to the exercise of an Option, the Plan
Administrator may require the Optionee to represent and warrant in writing at
the time of such exercise that the shares are being purchased only for
investment and without any then-present intention to sell or distribute such
shares. At the option of the Plan Administrator, a stop-transfer order against
such shares may be placed on the stock books and records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on the
certificates representing such shares in order to assure an exemption from
registration. The Plan Administrator also may require such other documentation
as may from time to time be necessary to comply with federal and state
-6-
<PAGE>
securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION OF
OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS.
(2) As a condition to the exercise of any Option granted under
this Plan, the Optionee shall make such arrangements as the Plan Administrator
may require for the satisfaction of any federal, state or local withholding tax
obligations that may arise in connection with such exercise.
(3) The issuance, transfer or delivery of certificates of Common
Stock pursuant to the exercise of Options may be delayed, at the discretion of
the Plan Administrator, until the Plan Administrator is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
(m) Stock Dividend, Reorganization or Liquidation.
---------------------------------------------
(1) If (i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or any successor provision)
or any "corporate transaction" described in the regulations thereunder; (ii) the
Company shall declare a dividend payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Plan Administrator shall, with respect to each outstanding Option,
proportionately adjust the number of shares of Common Stock and/or the exercise
price per share so as to preserve the rights of the Optionee substantially
proportionate to the rights of the Optionee prior to such event, and to the
extent that such action shall include an increase or decrease in the number of
shares of Common Stock subject to outstanding Options, the number of shares
available under Section 4 of this Plan shall automatically be increased or
decreased, as the case may be, proportionately, without further action on the
part of the Plan Administrator, the Company or the Company's shareholders.
(2) If the Company is liquidated or dissolved, the Plan
Administrator shall allow the holders of any outstanding Options to exercise all
or any part of the unvested portion of the Options held by them; provided,
--------
however, that such Options must be exercised prior to the effective date of such
liquidation or dissolution. If the Option holders do not exercise their Options
prior to such effective date, each outstanding Option shall terminate as of the
effective date of the liquidation or dissolution.
(3) The foregoing adjustments in the shares subject to Options
shall be made by the Plan Administrator, or by any successor administrator of
this Plan, or by the applicable terms of any assumption or substitution
document.
(4) The grant of an Option shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge, consolidate or
dissolve, to liquidate or to sell or transfer all or any part of its business or
assets.
(n) Option Grants to Non-Employee Directors.
---------------------------------------
(1) Automatic Grants. Immediately after each annual meeting of
shareholders at which he or she is elected a director, each Non-Employee
Director (as defined below) of the Corporation shall automatically be granted a
Non-Statutory Stock Option to purchase 5,000 shares of Common Stock for each
year included in the term for which such he or she was elected a director at
such
-7-
<PAGE>
meeting; provided, however, that if a director is appointed to fill a vacancy in
-------- -------
the Corporation's Board of Directors, a Non-Employee Director shall be granted a
Non-Statutory Stock Option to purchase that number of shares of Common Stock
equal to 5,000 multiplied by a fraction, the numerator of which shall be equal
to the number of months from the date of such appointment until the next
regularly scheduled annual meeting of shareholders at which directors are to be
elected (as determined by the Corporation's bylaws and rounded to the nearest
whole number) and the denominator of which shall be twelve (12). "Non-Employee
Director" shall have the meaning ascribed to such term in Rule 16b-3 under the
Exchange Act as such rule is in effect on the date this Plan is approved by the
shareholders of the Company, as it may be amended from time to time, or any
successor rule or rules thereto.
(2) Number of Shares. The option price for the Options granted
under this Section 5(n) shall be not less than one hundred percent (100%) of the
fair market value of the shares of Common Stock on the Date of Grant, as
determined by the Plan Administrator in good faith; provided, however, that
-------- -------
following registration of any of the Company's securities under Section 12 of
the Exchange Act, the fair market value shall be deemed to be the closing price
for the Common Stock as quoted on the Nasdaq National Market, or such other
primary exchange or quotation system on which the Common Stock is then listed
for trading, on the trading day immediately preceding the Date of Grant. Each
such Option shall have a ten-year term from the Date of Grant, unless earlier
terminated pursuant to Section 5(g).
(3) Vesting Schedule. No Option shall be exercisable by a Non-
Employee Director until it has vested. For Options granted in connection with
the election of a director at an annual meeting of shareholders, each Option
shall vest as to 5,000 shares of Common Stock for each year of service as a
director on each anniversary date of such annual meeting. For Options granted
in connection with the appointment of a director, each Option shall vest as to
5,000 shares of Common Stock (or, if a lesser number of shares of Common Stock
remain unvested, the remaining number of shares) for each year of service as a
director on each anniversary date of such appointment.
6. EFFECTIVE DATE; TERM.
--------------------
This Plan shall be effective as of March 13, 1997. Incentive Stock
Options may be granted by the Plan Administrator from time to time thereafter
until March 13, 2002. Non-Statutory Stock Options may be granted until this Plan
is terminated by the Board in its sole discretion. Termination of this Plan
shall not terminate any Option granted prior to such termination. Any Incentive
Stock Options granted by the Plan Administrator prior to the approval of this
Plan by a majority of the shareholders of the Company shall be granted subject
to ratification of this Plan by the shareholders of the Company within 12 months
after this Plan is adopted by the Board, and if shareholder ratification is not
obtained, each and every Incentive Stock Option shall become a Non-Statutory
Stock Option.
7. NO OBLIGATIONS TO EXERCISE OPTION.
---------------------------------
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
-8-
<PAGE>
8. NO RIGHT TO OPTIONS OR TO EMPLOYMENT, CONTRACTUAL OR DIRECTOR
RELATIONSHIP.
-------------------------------------------------------------
Except as provided in Section 5(n) above, whether or not any Options
are to be granted under this Plan shall be exclusively within the discretion of
the Plan Administrator, and nothing contained in this Plan shall be construed as
giving any person any right to participate under this Plan. The grant of an
Option shall in no way constitute any form of agreement or understanding binding
on the Company or any Related Corporation, express or implied, that the Company
or any Related Corporation will employ, contract with, or use any efforts to
cause to continue service as a director by, an Optionee for any length of time.
9. APPLICATION OF FUNDS.
--------------------
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
10. INDEMNIFICATION OF PLAN ADMINISTRATOR.
-------------------------------------
In addition to all other rights of indemnification they may have as
members of the Board, members of the Plan Administrator shall be indemnified by
the Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a party by reason of, or in
connection with, this Plan or any Option granted under this Plan, and against
all amounts paid by them in settlement thereof (provided that such settlement is
approved by independent legal counsel selected by the Company), except to the
extent that such expenses relate to matters for which it is adjudged that such
Plan Administrator member is liable for willful misconduct; provided, that
--------
within 15 days after the institution of any such action, suit or proceeding, the
Plan Administrator member involved therein shall, in writing, notify the Company
of such action, suit or proceeding, so that the Company may have the opportunity
to make appropriate arrangements to prosecute or defend the same.
11. AMENDMENT OF PLAN.
-----------------
Except as otherwise provided in Section 5(n) above, the Plan
Administrator may, at any time, modify, amend or terminate this Plan and Options
granted under this Plan; provided, that no amendment with respect to an
--------
outstanding Option shall be made over the objection of the Optionee thereof; and
provided further, that if required in order to keep the Plan in full compliance
- -------- -------
with the exemption from Section 16(b) of the Exchange Act provided by Rule 16b-
3, as amended, or any successor rule or rules, or any other rules or regulations
of the Securities and Exchange Commission, the Nasdaq National Market, or other
regulatory authorities, amendments to this Plan shall be subject to approval by
the Corporation's shareholders in compliance with the requirements of any such
rules or regulations.
-9-
<PAGE>
Without limiting the generality of the foregoing, the Plan
Administrator may modify grants to persons who are eligible to receive Options
under this Plan who are foreign nationals or employed outside the United States
to recognize differences in local law, tax policy or custom.
Date Approved by Board of Directors of Company:
March 13, 1997
/s/ Norbert W. Sugayan
------------------------------
Corporate Secretary
Date Approved by Shareholders of Company:
April 25, 1997
/s/ Norbert W. Sugayan
------------------------------
Corporate Secretary
-10-
<PAGE>
EXHIBIT 10.3
CERTAIN INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT 10.3, AS INDICATED BY
"***", PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED
SEPARATELY WITH THE COMMISSION.
1997 CONSULTING INCENTIVE COMPENSATION PLAN - $***[TARGET 1] TARGET
1. PERSONAL BILLABLE HOURS GOAL
Goal = 1,600 hours annual
<TABLE>
<CAPTION>
% OF GOAL HOURS RATE/HOUR INCREMENTAL CUMULATIVE
--------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C>
0 - 50 0 - 800 $*** $*** $***
51 - 75 801 - 1,200 $*** $*** $***
76 - 100 1,201 - 1,600 $*** $*** $***
100 - 125 1,600 - 2,000 $*** $***
125+ 2,000+ $***
</TABLE>
You must meet at least 50% of your personal billable hour goal for the
calculation period in order to receive commissions on personal billable hours
for that period.
2. PERSONAL OBJECTIVES (PO)
Factors:
. Timesheets: Consultant will lose $*** of the MBO bonus for each period
timesheets or expenses are turned in late.
. Resume Update: Each consultant is required to turn in resume updates
within 30 days of competing each project or at least every six months.
. Personal Training: Achievement of personal training goals and new
skills.
. Total hours: Total number of hours worked (billable and non-billable).
. Overall contribution and Performance:
Target is $*** ($***/quarter)
NOTE: Personal billable hours and personal objective bonuses are paid
quarterly, normally 30 days after the end of each quarter.
3. CONSULTING PROFIT GOAL
bonus rate bonus at goal
--------------------------------
*** (% of goal) $***
This is a pre-tax adjusted profit goal based on consulting operations.
NOTE: Profit bonus is paid annually.
TOTAL INCENTIVE COMPENSATION GOAL:
1. $***
2. $***
3. $***
----
$***
<PAGE>
1997 CONSULTING INCENTIVE COMPENSATION PLAN - $***[TARGET 2] TARGET
1. PERSONAL BILLABLE HOURS GOAL
Goal = 1,600 hours annual
<TABLE>
<CAPTION>
% OF GOAL HOURS RATE/HOUR INCREMENTAL CUMULATIVE
--------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C>
0 - 50 0 - 800 $*** $*** $***
51 - 75 801 - 1,200 $*** $*** $***
76 - 100 1,201 - 1,600 $*** $*** $***
100 - 125 1,600 - 2,000 $*** $***
125+ 2,000+ $***
</TABLE>
You must meet at least 50% of your personal billable hour goal for the
calculation period in order to receive commissions on personal billable hours
for that period.
2. PERSONAL OBJECTIVES (PO)
Factors:
. Timesheets: Consultant will lose $*** of the MBO bonus for each period
timesheets or expenses are turned in late.
. Resume Update: Each consultant is required to turn in resume updates
within 30 days of competing each project or at least every six months.
. Personal Training: Achievement of personal training goals and new
skills.
. Total hours: Total number of hours worked (billable and non-billable).
. Overall contribution and Performance:
Target is $*** ($***/quarter)
NOTE: Personal billable hours and personal objective bonuses are paid
quarterly, normally 30 days after the end of each quarter.
3. CONSULTING PROFIT GOAL
bonus rate bonus at goal
--------------------------------
*** (% of goal) $***
This is a pre-tax adjusted profit goal based on consulting operations.
NOTE: Profit bonus is paid annually.
TOTAL INCENTIVE COMPENSATION GOAL:
1. $***
2. $***
3. $***
----
$***
<PAGE>
1997 CONSULTING INCENTIVE COMPENSATION PLAN - $***[TARGET 3] TARGET
1. PERSONAL BILLABLE HOURS GOAL
Goal = 1,600 hours annual
<TABLE>
<CAPTION>
% OF GOAL HOURS RATE/HOUR INCREMENTAL CUMULATIVE
--------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C>
0 - 50 0 - 800 $*** $*** $***
51 - 75 801 - 1,200 $*** $*** $***
76 - 100 1,201 - 1,600 $*** $*** $***
100 - 125 1,600 - 2,000 $*** $***
125+ 2,000+ $***
</TABLE>
You must meet at least 50% of your personal billable hour goal for the
calculation period in order to receive commissions on personal billable hours
for that period.
2. PERSONAL OBJECTIVES (PO)
Factors:
. Timesheets: Consultant will lose $*** of the MBO bonus for each period
timesheets or expenses are turned in late.
. Resume Update: Each consultant is required to turn in resume updates
within 30 days of competing each project or at least every six months.
. Personal Training: Achievement of personal training goals and new
skills.
. Total hours: Total number of hours worked (billable and non-billable).
. Overall contribution and Performance:
Target is $*** ($***/quarter)
NOTE: Personal billable hours and personal objective bonuses are paid
quarterly, normally 30 days after the end of each quarter.
3. CONSULTING PROFIT GOAL
bonus rate bonus at goal
--------------------------------
*** (% of goal) $***
This is a pre-tax adjusted profit goal based on consulting operations.
NOTE: Profit bonus is paid annually.
TOTAL INCENTIVE COMPENSATION GOAL:
1. $***
2. $***
3. $***
----
$***
<PAGE>
1997 CONSULTING INCENTIVE COMPENSATION PLAN - $***[TARGET 4] TARGET
1. PERSONAL BILLABLE HOURS GOAL
Goal = 1,600 hours annual
<TABLE>
<CAPTION>
% OF GOAL HOURS RATE/HOUR INCREMENTAL CUMULATIVE
--------- ----- --------- ----------- ----------
<S> <C> <C> <C> <C>
0 - 50 0 - 800 $*** $*** $***
51 - 75 801 - 1,200 $*** $*** $***
76 - 100 1,201 - 1,600 $*** $*** $***
100 - 125 1,600 - 2,000 $*** $***
125+ 2,000+ $***
</TABLE>
You must meet at least 50% of your personal billable hour goal for the
calculation period in order to receive commissions on personal billable hours
for that period.
2. PERSONAL OBJECTIVES (PO)
Factors:
. Timesheets: Consultant will lose $*** of the MBO bonus for each period
timesheets or expenses are turned in late.
. Resume Update: Each consultant is required to turn in resume updates
within 30 days of competing each project or at least every six months.
. Personal Training: Achievement of personal training goals and new
skills.
. Total hours: Total number of hours worked (billable and non-billable).
. Overall contribution and Performance:
Target is $*** ($***/quarter)
NOTE: Personal billable hours and personal objective bonuses are paid
quarterly, normally 30 days after the end of each quarter.
3. CONSULTING PROFIT GOAL
bonus rate bonus at goal
--------------------------------
*** (% of goal) $***
This is a pre-tax adjusted profit goal based on consulting operations.
NOTE: Profit bonus is paid annually.
TOTAL INCENTIVE COMPENSATION GOAL:
1. $***
2. $***
3. $***
----
$***
<PAGE>
EXHIBIT 10.38
CERTAIN INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT 10.38, AS INDICATED BY
"***", PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED
SEPARATELY WITH THE COMMISSION.
ORACLE
This Reseller Agreement (the "Agreement") is between Oracle Corporation with its
principal place of business at 500 Oracle Parkway, Redwood City, California
94085 ("Oracle") and ARIS Corporation (legal name) with its principal place of
-----------------
business at 6720 Fort Vent Way #150 Seattle, WA 95188 (the "Reseller"). The
-----------------------------------------
terms of this Agreement shall apply to each Program license granted and to all
services provided by Oracle under this Agreement. When completed and executed
by both parties, an Order Form shall evidence the Program licenses granted and
the services that are to be provided.
1. DEFINITIONS
1.1 "Commencement Date" shall mean the date on which the Programs are
delivered by Oracle, or if no delivery is necessary, the Effective Date
set forth on the relevant Order Form.
1.2 "Designated System" shall mean the computer hardware and operating system
designated on the relevant Order Form or Sublicense report for use in
conjunction with a Sublicensed Program, or a Development License, or a
Marketing Support License.
1.3 "Order Form" shall mean the document by which the Reseller orders Program
licenses and services, and which is agreed to by the parties. The Order
Form shall reference the Effective Date of the Agreement.
1.4 "Price List" shall mean Oracle's standard commercial fee schedule that is
in effect when a Program license or services are ordered by the Reseller.
1.5 "Program" shall mean the computer software in object code form owned or
distributed by Oracle for which the Reseller is granted a license
pursuant to this Agreement; the user guides and manuals for use of the
software ("Documentation"); and Updates. "Limited Production Programs"
shall be Programs not specified on the Price List or specified as Limited
Production, Tier 3 or with special restrictions on the Price List.
1.6 "Reseller Addenda" shall mean the addenda to this Agreement specifying
additional Sublicense terms and Sublicense rates and fees for the various
types of Sublicenses which may be granted by the Reseller.
1.7 "Sublicense" shall mean a nonexclusive, nontransferable right granted by
the Reseller under a Reseller Addendum to an end user to use an object
code copy of the Programs with the Value-Added Package. "Sublicensee"
shall mean a third party who is granted a Sublicense of the Programs with
the Value-Added Package for such party's own internal business purposes
and not for purposes of any further distribution.
1.8 "Supported Program License" shall mean a Development License or Marketing
Support License for which the Reseller has ordered Technical Support for
the relevant time period. "Technical Support" shall mean Program support
provided under Oracle's policies in effect on the date Technical Support
is ordered.
1.9 "Update(s)" shall mean subsequent releases of the Programs which are
generally made available for Supported Program Licenses at no additional
charge, other than media and handling charges. Updates shall not include
any releases, options or future products which Oracle licenses
separately.
1.10 "User," unless otherwise specified in the Order Form, shall mean a
specific individual employed by the Reseller who is authorized by the
Reseller to use the Programs, regardless of whether the individual is
actively using the Programs at any given time. With respect to a
Sublicense, "User," unless otherwise specified in the Order Form or
Sublicense report for a user type specified in the Price List in effect
when the Program is Sublicensed, shall mean a specific individual
employed by the Sublicensee who is authorized by the Sublicensee to use
the Programs, regardless of whether the individual is actively using the
Programs at any given time.
1.11 "Value-Added Package" shall mean the hardware or software products or
services having added value which are developed, sold, and/or licensed
with the Programs to a Sublicensee by the Reseller, as provided under the
applicable Reseller Addenda, to satisfy such Sublicensee's internal
business requirements and objectives.
2. LICENSES GRANTED
2.1 Development Licenses and Trial Licenses
A. Oracle grants to the Reseller a nonexclusive license to use the
Development Licenses the Reseller obtains under this Agreement, as
follows:
1. to develop or prototype the Value-Added Package on the Designated
System or on a backup system if the Designated System is inoperative, up
to any applicable maximum number of designated users (if any User
limitation applies);
2. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package;
3. to provide training and technical support to employees and customers
solely in conjunction with the Value-Added Package;
4. to use the Documentation provided with the Programs in support of the
Reseller's authorized use of the Programs; and
5. to copy the programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the Programs
are subject to the terms of this Agreement.
B. The Reseller may order temporary trial licenses ("Trial Licenses") for
its evaluation purposes only, and not for development or prototype
purposes, for use during a period specified in the Order Form. Each Order
Form for Trial Licenses shall clearly state the trial period and shall
identify that the order is for a Trial License.
<PAGE>
2.2 Marketing Support Licenses
Oracle grants to the Reseller a nonexclusive license to use the
Marketing Support Licenses the Reseller obtains under this Agreement, as
follows:
A. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package, up to any applicable maximum
number of designated Users (if any User limitation applies);
B. to develop customized prototypes of the Value-Added Package for
prospective Sublicensees on the Designated System if the Reseller does not
receive any fees related to the development of such customized prototypes;
C. to use the Documentation provided with the Programs in support of the
Reseller's authorized use of the Programs; and
D. to copy the Programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be reproduced
in such copies. All archival and backup copies of the Programs are subject
to the terms of this Agreement.
2.3 Sublicensing
A. License to Sublicense Programs
As further set forth in the applicable Reseller Addendum, Oracle
hereby grants the Reseller a nonexclusive, nontransferable license to
market and grant Sublicenses as set forth in such Reseller Addenda and at
the rates and fees set forth in such Reseller Addendum. The Reseller shall
only have the right to Sublicense Programs pursuant to an effective
Reseller Addendum between the parties hereto.
The Reseller shall Sublicense the Programs solely through a written
Sublicense agreement as provided under Section 2.3.B. Upon Oracle's
request, the Reseller shall provide Oracle with a copy of the Reseller's
standard Sublicense agreement.
B. Sublicense Agreement
Every Sublicense agreement shall include, at a minimum, contractual
provisions which:
1. Restrict use of the Programs to object code form on a single
Designated System by a maximum number of Users for the Sublicensee's
own internal data processing only;
2. Prohibit transfer or duplication of the Programs except for temporary
transfer in the event of computer malfunction and a single backup or
archival copy;
3. Prohibit assignment, timesharing or rental of the Programs;
4. Except as otherwise agreed by the parties, prohibit use of the
Programs for any purpose outside the scope of the Value-Added Package;
5. Prohibit causing or permitting the reverse engineering, disassembly or
decompilation of the Programs;
6. Prohibit title from passing to the Sublicensee;
7. Disclaim Oracle's liability for any damages, whether direct, indirect,
incidental or consequential arising from the use of the Programs;
8. Require the Sublicensee, at the termination of the Sublicense, to
discontinue use and destroy or return to the Reseller the Programs,
Documentation and all archival or other copies of the Program;
9. Restrict publication of any results of benchmark tests run on the
Programs;
10. For Programs Sublicensed for use in the United States, prohibit
transfer of the Programs outside the United States; for Programs
Sublicensed for use outside the United States, require the Sublicensee
to comply fully with all relevant export laws and regulations of the
United States to assure that neither the Programs, nor any direct
product thereof, are exported, directly or indirectly, in violation of
United States law;
11. Specify Oracle as a third party beneficiary of the Sublicense
agreement; and
12. Allow the Reseller to comply with Section 8.10 of this Agreement.
C. Marketing/Sublicensing Practices
In marketing and Sublicensing the Programs, the Reseller shall:
1. Avoid deceptive, misleading, illegal, or unethical practices that may
be detrimental to Oracle or to the Programs;
2. Not make any representations, warranties, or guarantees to
Sublicensees concerning the Programs that are inconsistent with or in
addition to those made in this Agreement or by Oracle; and
3. Comply with all applicable federal, state, and local laws and
regulations in performing its duties with respect to the Programs.
2.4 Acceptance of Programs
For each Program license for which delivery from Oracle is required
under this Agreement, the Reseller shall have a 15 day Acceptance Period,
beginning on the Commencement Date, in which to evaluate the Program.
During the Acceptance Period, the Reseller may cancel the license by giving
written notice to Oracle and returning the Program in accordance with
Section 6.6 below. Unless such cancellation notice is given, the license
will be deemed to have been accepted by the Reseller at the end of the
Acceptance Period.
2.5 Limitations on Use
The Reseller shall not use or duplicate the Programs (including the
Documentation) for any purpose other than as specified in this Agreement or
make the Programs available to unauthorized third parties. The Reseller may
not use the Programs for the processing of internal administrative data or
customer data. The Reseller shall not rent, electronically distribute, or
timeshare the Programs or market the Programs by interactive cable or
remote processing services or otherwise distribute the Programs other than
as specified in this Agreement. The Reseller agrees not to cause or permit
the reverse engineering, disassembly, or decompilation of the Programs.
2.6 Title.
Oracle shall retain all title, copyright, and other proprietary rights
in the Programs and any
1
<PAGE>
modifications or translations thereof. The Reseller and its Sublicensees
do not acquire any rights in the Programs other than those specified in
this Agreement.
2.7 Transfer of Programs
Except as otherwise specified in the Order Form, within the United
States, a Development License or Marketing Support License may be
transferred to another computer system of like configuration (same model
and operating system), or the Designated System may be transferred to
another location within the Reseller's organization, upon written notice
to Oracle. All other transfers, including transfer of a Program license
outside the United States, shall be permitted only with Oracle's prior
written consent and shall be subject to Oracle's standard transfer fees
in effect at the time of the transfer.
3. TECHNICAL SERVICES
3.1 Technical Support Services
Technical Support services ordered by the Reseller will be provided
under Oracle's Technical Support policies in effect on the date Technical
Support is ordered, subject to the payment by the Reseller of the
applicable fees. At the Reseller's request, Oracle will provide remote
assistance in the installation of each Supported Program license.
Reinstatement of lapsed Technical Support services is subject to Oracle's
Technical Support reinstatement fees in effect on the date Technical
Support is reordered. Limited Production Programs and pre-production
releases of Programs may not be eligible for standard Technical Support
services; the Reseller may obtain Technical Support services for Limited
Production Programs on a time and materials basis.
3.2 Training Services
Oracle will provide training services agreed to by the parties under
the terms of this Agreement. For any on site services requested by the
Reseller, the Reseller shall reimburse Oracle for actual, reasonable
travel and out-of-pocket expenses incurred, plus an administrative fee of
***% of such amount.
4. FEES AND PAYMENTS
4.1 License Fees and Sublicense Fees
The Reseller may order Development Licenses or Marketing Support
Licenses at the standard Program license fees set forth in the Price List
or at the fees otherwise provided in a Reseller Addendum. For each copy
of the Programs Sublicensed by the Reseller, the Reseller agrees to pay
Oracle a Sublicense fee as set forth in applicable Reseller Addenda.
The Reseller is free to determine unilaterally its own license fees
to its Sublicensees. If the Reseller or a Sublicensee upgrades the
Programs to a larger cpu, transfers the Programs to another operating
system, or increases the licensed number of Users, the Reseller will pay
additional Sublicense fees to Oracle as provided under Oracle's transfer
policies and rates in effect at the time the Program is upgraded or
transferred.
4.2 Technical Support Fees
Technical Support services ordered by the Reseller for Development
Licenses and Marketing Support Licenses will be provided under Oracle's
Technical Support policies and rates in effect on the date Technical
Support is ordered.
4.3 General Payment Terms
Except as otherwise provided herein, invoices for payment of license
fees shall be payable 30 days from the Commencement Date. Technical
Support fees for Sublicenses shall be as specified in the applicable
Reseller Addendum. Technical Support fees for Development Licenses and
Marketing Support Licenses shall be payable annually in advance, net 30
days from the renewal date; such fees will be those in effect at the
beginning of the period for which the fees are paid. Fees due by the
Reseller shall not be subject to set off for any claims against Oracle.
All payments made shall be in United States currency and shall be made
without deductions based on any taxes or withholdings, except where such
deduction is based on gross income. The fees listed in this Agreement do
not include taxes; if Oracle is required to pay sales, use, property,
value-added, or other federal, state or local taxes based on the licenses
granted under this Agreement, or the Sublicenses granted by the Reseller,
then such taxes shall be billed to and paid by the Reseller; this shall
not apply to taxes based on Oracle's income. Any amounts payable by the
Reseller hereunder which remain unpaid after the due date shall be
subject to late penalty fees equal to ***% per month from the due date
until such amount is paid. The Reseller agrees to pay applicable media
and shipping charges.
5. RECORDS
5.1 Records Inspection
The Reseller shall maintain books and records in connection with
activity under this Agreement. Such records shall include executed
Sublicense agreements and the information required in or related to the
Sublicense reports required under a Reseller Addendum. Oracle may, at its
expense, audit the executed Sublicensee agreements, the number of copies
of Programs used or Sublicensed by the Reseller, the computers on which
the Programs are installed, and the number of Users using the Programs
upon reasonable notice to the Reseller. Oracle may audit the relevant
books and records of the Reseller to ensure compliance with the terms of
this Agreement. Any such audit shall be conducted during regular business
hours at the Reseller's offices and shall not interfere unreasonably with
the Reseller's business activities. If an audit reveals that the Reseller
has underpaid fees to Oracle, the Reseller shall be invoiced for such
underpaid fees based on the Price List in effect at the time the audit is
completed. If the underpaid fees are in excess of five percent (5%), then
the Reseller shall pay Oracle's reasonable costs of conducting the audit.
Audits shall be made no more than once annually.
5.2 Notice of Claim
The Reseller will notify the Oracle legal department promptly in
writing of: (a) any claim or proceeding involving the Programs that comes
to its attention; (b) all claimed or suspected defects in
2
<PAGE>
the Programs; and (c) any material change in the management or control
of the Reseller.
6. TERM AND TERMINATION
6.1 Term
Each Program license granted under this Agreement shall remain in
effect perpetually (if not otherwise specified on the Order Form),
unless a license or this Agreement is terminated as provided in Section
6.2 or 6.3 below. The term of each Reseller Addendum hereunder shall be
as set forth in such Addendum.
6.2 Termination by the Reseller
The Reseller may terminate any Program license, any Reseller Addenda,
or this Agreement at any time; however, termination shall not relieve
the Reseller's obligation to pay all fees that have accrued or that the
Reseller has agreed to pay under a Reseller Addendum or any Order Form
or other similar ordering document under this Agreement.
6.3 Termination by Oracle
Oracle may terminate any Program license, any Reseller Addenda, or
this Agreement upon written notice if the Reseller breaches this
Agreement and fails to correct the breach within 30 days following
written notice specifying the breach.
6.4 Force Majeure
Neither party shall be liable to the other for failure or delay in
the performance of a required obligation if such failure or delay is
caused by strike, riot, fire, flood, natural disaster, or other similar
cause beyond such party's control, provided that such party gives prompt
written notice of such condition and resumes its performance as soon as
possible, and provided further that the other party may terminate this
Agreement if such condition continues for a period of one hundred eighty
(180) days.
6.5 Effect of Termination
Upon expiration or termination of a Reseller Addendum or this
Agreement, all the Reseller's rights to market, Sublicense, and use the
Programs as set forth in such Reseller Addendum or this Agreement shall
cease.
The termination of this Agreement, a Reseller Addendum, or any
license shall not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor shall such termination
relieve the Reseller's obligation to pay all fees that have accrued or
that the Reseller has agreed to pay under a Reseller Addendum or any
Order Form or other similar ordering document under this Agreement. The
parties' rights and obligations under Sections 2.5, 2.6, 2.7 and
Articles 5, 6, 7, and 8 shall survive termination of this Agreement.
If the Reseller materially breaches this Agreement, including
failing to make any payments required hereunder when due under any Order
Form or other similar ordering document to this Agreement, then Oracle
may declare all sums due and to become due hereunder immediately due and
payable.
Return of Programs upon Termination
6.6 If a license granted under this Agreement expires or otherwise
terminates, the Reseller shall: (a) cease using the applicable Programs;
and (b) certify to Oracle within one month after expiration or
termination that the Reseller has destroyed or has returned to Oracle
the Programs and all copies. This requirement applies to copies in all
forms, partial and complete, in all types of media and computer memory,
and whether or not modified or merged into other materials. Before
returning Programs to Oracle, the Reseller shall acquire a Return
Material Authorization ("RMA") number from Oracle at (415) 506-1500.
7. INDEMNITY, WARRANTIES, REMEDIES, LIMITATION OF LIABILITY
7.1 Infringement Indemnity
Oracle will defend and indemnify the Reseller against a claim that
Programs furnished and used within the scope of this Agreement infringe
a United States copyright or patent, provided that: (a) the Reseller
notifies Oracle in writing within 30 days of the claim; (b) Oracle has
sole control of the defense and all related settlement negotiations; and
(c) the Reseller provides Oracle with the assistance, information and
authority necessary to perform Oracle's obligations under this
paragraph. Reasonable out-of-pocket expenses incurred by the Reseller in
providing such assistance will be reimbursed by Oracle.
Oracle shall have no liability for any claim of infringement based
on: (a) use of a superseded or altered release of Programs if the
infringement would have been avoided by the use of a current unaltered
release of the Programs that Oracle provides to the Reseller; or (b) the
combination, operation or use of any Programs furnished under this
Agreement with software, hardware or other materials not furnished by
Oracle if such infringement would have been avoided by the use of the
Programs without such software, hardware, or other materials.
In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at its expense, to (a) modify
the Programs to be noninfringing; (b) obtain for the Reseller a license
to continue using the Programs; or (c) terminate the license for the
infringing Programs and refund the license fees paid for those Programs,
prorated over a five year term from the Commencement Date. This Section
7.1 states Oracle's entire liability and the Reseller's exclusive
remedy for infringement.
7.2 Warranties and Disclaimers
A. Warranties
1. Program License Warranties
For each Supported Program License, Oracle warrants for a period of
one year from the Commencement Date that the Programs, unless modified
by the Reseller, will perform the functions described in the
Documentation provided by Oracle when operated on the Designated System.
Oracle will undertake to correct any reported error condition in
accordance with its technical support policies.
ORACLE DOES NOT WARRANT THAT THE PROGRAMS WILL RUN PROPERLY ON ALL
HARDWARE, THAT THE PROGRAMS WILL MEET REQUIREMENTS OF THE RESELLER OR
THE SUBLICENSEES OR OPERATE IN THE COMBINATIONS WHICH MAY BE SELECTED
FOR
<PAGE>
USE BY THE RESELLER OR THE SUBLICENSEES, THAT THE OPERATION OF THE PROGRAMS
WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT ALL PROGRAM ERRORS WILL BE
CORRECTED.
If the Reseller does not obtain Technical Support services, the
Programs are distributed "as is."
The Reseller shall not make any warranty on Oracle's behalf.
2. Services Warranty
Oracle warrants that its Technical Support and training services will
be performed consistent with generally accepted industry standards. This
warranty shall be valid for 90 days from performance of service.
B. Limitations on Warranties
1. THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
2. As an accommodation to the Reseller, Oracle may supply the Reseller
with Limited Production Programs or with pre-production releases of
Programs (which may be labeled "Alpha" or "Beta"). These products are not
suitable for production use. Oracle does not warrant Limited Production
Programs, pre-production releases or computer-based training products;
these products are distributed "as is".
7.3 Exclusive Remedies
For any breach of the warranties contained in Section 7.2 above, the
Reseller's exclusive remedy, and Oracle's entire liability, shall be:
A. For Programs
The correction of Program errors that cause breach of the warranty, or
if Oracle is unable to make the Program operate as warranted, the Reseller
shall be entitled to recover the fees paid to Oracle for the Program
licensee or Update, as applicable.
B. For Services
The reperformance of the services, of if Oracle is unable to perform
the services as warranted, the Reseller shall be entitled to recover the
fees paid to Oracle for the deficient services.
7.4 Limitation of Liability
In no event shall either party be liable for any indirect, incidental,
special or consequential damages, or damages for loss of profits, revenue,
data or use, incurred by either party or any third party, whether in an
action in contract or tort, even if the other party or any other person has
been advised of the possibility of such damages. Oracle's liabiity for
damages hereunder shall in no event exceed the amount of fees paid by the
Reseller under this Agreement, and if such damages result from the
Reseller's use of the Program or services, such liability shall be limited
to fees paid for the relevant Program or services giving rise to the
liability, prorated over a five-year term from the Commencement Date of the
applicable license or the date of performance of the applicable services.
The provisions of this Article 7 allocate the risks under this
Agreement between Oracle and the Reseller. Oracle's pricing reflects this
allocation of risk and the limitation of liability specified herein.
7.5 Indemnification of Oracle
The Reseller agrees to enforce the terms of its Sublicense agreements
required by this Agreement and to inform Oracle of any known breach of such
terms. The Reseller will defend and indemnify Oracle against:
A. All claims and damages to Oracle arising from any use by the Reseller
or its Sublicensees of any product not provided by Oracle but used in
combination with the Programs if such claim would have been avoided by the
exclusive use of the Programs;
B. All damages to Oracle caused by the Reseller's failure to include the
required contractual terms set forth in Section 2.3.B hereof in each
Sublicense agreement; and
C. All damages to Oracle caused by Sublicenees' breach of any of the
applicable provisions required by Section 2.3 hereof.
7.6 Equitable Relief
The Reseller acknowledges that any breach of its obligations with
respect to proprietary rights of Oracle will cause Oracle irreparable
injury for which there are inadequate remedies at law and that Oracle shall
be entitled to equitable relief in addition to all other remedies available
to it.
8. GENERAL TERMS AND CONDITIONS
8.1 Nondisclosure
Neither party shall, without first obtaining the written consent of
the other party disclose the terms and conditions of this Agreement, except
as may be required to implement and enforce the terms of this Agreement, or
as may be required by legal procedure or by law. No other information
exchanged between the parties shall be deemed confidential unless the
parties otherwise agree in writing. The Reseller shall not disclose the
results of benchmark tests or other evaluation of the Programs to any third
party without Oracle's prior written approval.
8.2 Copyrights
The Programs are copyrighted by Oracle. The Reseller shall retain all
Oracle copyright notices on the Programs used by the Reseller under its
Development Licenses or Marketing Support Licenses. The Reseller shall
include the following on all copies of the Programs in application packages
distributed by the Reseller:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Reseller containing the following:
1. A "c" in a circle and the word "copyright";
2. The Reseller's name;
3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on screen
for any application package incorporating the Programs, and the diskette or
tape labels. Notwithstanding any copyright notice by the Reseller to the
contrary, the copyright to the Program included in any such application
package
4
<PAGE>
shall remain in Oracle. Other than as specified above, on any
reproduction or translation of any Programs, Documentation, or
promotional material, the Reseller agrees to reproduce Oracle's
copyright notices intact.
8.3 Trademarks
"Oracle" and any other trademarks and service marks adopted by Oracle
to identify the Programs and other Oracle products and services belong
to Oracle: the Reseller will have no rights in such marks except as
expressly set forth herein and as specified in writing from time to
time. The Reseller's use of Oracle's trademarks shall be under Oracle's
trademark policies and procedures in effect from time-to-time. The
Reseller agrees not to use the trademark "ORACLE," or any mark beginning
with the letters "Ora," or any other mark likely to cause confusion with
the trademark "ORACLE" as any portion of the Reseller's tradename,
trademark for the Reseller's Value-Added Package, or trademark for any
other products of the Reseller. The Reseller shall have the right to use
the trademark "ORACLE" and other Oracle trademarks solely to refer to
Oracle's Programs, products and services.
The Reseller agrees with respect to each registered trademark of
Oracle, to include in each advertisement, brochure, or other such use
of the trademark, the trademark symbol "circle R" and the following
statement:
_______is a registered trademark of Oracle Corporation, Redwood
City, California.
Unless otherwise notified in writing by Oracle, the Reseller agrees,
with respect to every other trademark of Oracle, to include in each
advertisement, brochure, or other such use of the trademark, the symbol
"TM" and the following statement:
_______is a trademark of Oracle Corporation, Redwood City,
California.
The Reseller shall not market the Oracle Programs in any way which
implies that the Oracle Programs are the proprietary product of the
Reseller or of any party other than Oracle. Oracle shall not have any
liability to the Reseller for any claims made by third parties relating
to the Reseller's use of Oracle's trademarks.
8.4 Relationships between Parties
In all matters relating to this Agreement, the Reseller will act as
an independent contractor. The relationship between Oracle and the
Reseller is that of licensor/licensee. Neither party will represent that
it has any authority to assume or create any obligation, express or
implied, on behalf of the other party, nor to represent the other party
as agent, employee, franchisee, or in any other capacity. Nothing in
this Agreement shall be construed to limit either party's right to
independently develop or distribute software which is functionally
similar to the other party's product, so long as proprietary information
of the other party is not used in such development.
8.5 Assignment
The Reseller may not assign or otherwise transfer any rights under
this Agreement without Oracle's prior written consent.
8.6 Notice
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given
when mailed by first class mail to the first address listed in the
relevant Order Form (if to the Reseller) or to the Oracle address on the
Order Form (if to Oracle).
To expedite order processing, the Reseller agrees that Oracle may
treat documents faxed by the Reseller to Oracle as original documents:
nevertheless, either party may require the other to exchange original
signed documents.
8.7 Governing Law/Jurisdiction
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California and
shall be deemed to be executed in Redwood City, California. The parties
agree that any legal action or proceeding relating to this Agreement
shall be instituted in any state or federal court in San Francisco or
San Mateo County, California. Oracle and the Reseller agree to submit to
the jurisdiction of, and agree that venue is proper in, the aforesaid
courts in any such legal action or proceeding.
8.8 Severability
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in
full force and effect.
8.9 Export
The Reseller agrees to comply fully with all relevant export laws and
regulations of the United States to assure that neither the Programs,
nor any direct product thereof, are exported, directly or indirectly, in
violation of United States Law.
8.10 Inherently Dangerous Applications
The Programs are not specifically developed, or licensed for use in
any nuclear, aviation, mass transit, or medical application or in any
other inherently dangerous applications. The Reseller agrees to notify
each Sublicensee of the Reseller of this limitation. The Reseller hereby
agrees, and each Sublicensee shall agree, that Oracle shall not be
liable for any claims or damages arising from such use if the Reseller
or its Sublicensees use the Program for such applications. The Reseller
agrees to indemnify and hold Oracle harmless from any claims for losses,
costs, damages, or liability arising out of or in connection with the
use of the Programs in such applications.
8.11 Federal Government Sublicenses
If the Reseller grants a Sublicense to he United States government,
the Programs shall be provided with "Restricted Rights" and the
Reseller will place a legend, in addition to applicable copyright
notices, on the documentation, and on the tape or diskette label,
substantially similar to the following:
RESTRICTED RIGHTS LEGEND
"Use, duplication or disclosure by the Government is subject to
restrictions as set forth in subparagraph
5
<PAGE>
(c)(1)(ii) of the Department of Defense Regulations Supplement ("DFARS")
252.227-7013. Rights in Technical Data and Computer Software (October
1988) and Federal Acquisition Regulation ("FAR") 52.227-14. Rights in
Data-General, including Alternate III (June 1987), as applicable. Oracle
Corporation, 500 Oracle Parkway, Redwood City, CA 94085."
6.12 Waiver
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or
breach.
6.13 Entire Agreement
This Agreement constitutes the complete agreement between the parties
and supersedes all prior or contemporaneous agreements or representations,
written or oral, concerning the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a
duly authorized representative of each party; no other act, document,
usage or custom shall be deemed to amend or modify this Agreement. This
Agreement may be executed in any number of counterparts, each of which
shall be an original and all of which shall constitute together but one
and the same document. All terms and conditions of any Reseller purchase
order or other ordering document shall be superseded by the terms and
conditions of this Agreement.
6
<PAGE>
The Effective Date of this Agreement shall be January 24, 1995
------------------
Executed by ARIS Corporation: Executed by Oracle Corporation:
Authorized Signature: /s/ Paul Song Authorized Signature:
---------------- ---------------
Name: PAUL SONG Name:
-------------------------------- -------------------------------
Title: PRESIDENT Title:
------------------------------- ------------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94085
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
<PAGE>
AMENDMENT ONE
to the
RESELLER AGREEMENT
between
ARIS CORPORATION
and
ORACLE CORPORATION
This document ("Amendment One") shall serve to amend the Reseller Agreement and
any amendments thereto between Aris Corporation (the "Reseller") and Oracle
Corporation ("Oracle") dated Jan 24, 1995, (the "Agreement").
The Agreement is hereby amended as follows:
1. Beginning in line 4 of Section 3.2 of the Agreement, the following
shall be deleted:
", plus an administrative fee of ***% of such amount."
2. The third and fourth sentences of Section 5.1 of the Agreement shall
be deleted and the following shall be inserted:
"Oracle may, at its expense, retain an independent third party to
audit the executed Sublicensee agreements, the number of copies of
Programs used or Sublicensed by the Reseller, the computers on which
the Programs are installed, and the number of Users using the Programs
upon reasonable notice to the Reseller. Such third party may audit
the relevant books and records of the Reseller to ensure compliance
with the terms of this Agreement."
"The Reseller shall have the right to allow the Reseller's third party
agents ("Agents") to use the Programs on behalf of the Reseller for
the purposes specified under this Agreement so long as the Reseller
ensures that the Agents use the Programs in accordance with the terms
of this Agreement."
<PAGE>
Other than the addition of the foregoing, the Agreement remains unchanged and in
full force and effect.
The Effective Date of this Amendment One is __________, 1994.
ARIS CORPORATION ORACLE CORPORATION
By: /s/ Paul Song By:
-------------------- -----------------------
Name: PAUL SONG Name:
------------------ ---------------------
Title: PRESIDENT Title:
----------------- --------------------
2
<PAGE>
RESELLER FULL USE SUBLICENSE ADDENDUM
This document (The "Addendum") is between Oracle Corporation ("Oracle") and ARIS
----
Corporation (the "Reseller") and shall be goverened by the terms of the Reseller
- -----------
Agreement between the Reseller and Oracle effective Jan 24 1995 (the
------ --
"Agreement") and the terms set forth below.
1. SUBLICENSES
1.1 Sublicense Programs and Terms
The Reseller shall have the right to Sublicense Full Use or Deployment
Programs for any Programs which are available in production release and
listed on Oracle's Price List in effect at the time the Programs are
ordered from Oracle for Sublicense to the Sublicensee; provided, however,
except for the Oracle Mail Program and the Oracle Alert Program, the
Reseller shall have no right to Sublicense any Programs designated as
Oracle Applications Programs or Limited Production Programs without the
prior written consent of Oracle.
The Reseller shall have the right to market and grant Sublicenses of
Full Use or Deployment Programs for use on Designated Systems in
conjunction with the Integrated System to Sublicensees. Each copy of the
Full Use or Deployment Programs distributed shall be for the Sublicensee's
own internal use in the Territory only on a single Designated System
limited to a maximum number of Users.
To acquire Programs for Sublicensing to Sublicensees, the Reseller shall
order such Programs from Oracle. Orders for Trial Sublicenses shall be
clearly marked on the face of the Order Form.
1.2 Full Use and Deployment Programs
For the purposes of this Addendum, "Full Use Programs" shall mean
unaltered versions of the Programs with all functions intact. "Deployment
Programs" shall mean Programs which are limited to use solely for the
purpose of running applications, and may not be used to create or alter
tables or reports except as necessary for operating the applications.
1.3 Value-Added Package
For the purposes of this Addendum, "Integrated System" shall mean the
hardware and software products having Value-Added which are developed,
sold, and/or licensed with the Programs to a Sublicensee by the Reseller to
satisfy such Sublicensee's internal business requirements and objectives.
For purposes of the Agreement, the Integrated System will be regarded as
the Reseller's Value-Added Package which is described in the attached
Value-Added Attachment. The integrated System shall be regarded as
"Value-Added" if the following materials are provided as part of the
Integrated System by the Reseller: (a) non-Oracle developed software; (b)
customized programming or customized consulting; and (c) other computer
products or components.
1.4 Trial Sublicenses
The Reseller shall be entitled to grant, at no charge, up to ten (10)
temporary Trial Sublicenses of the Programs at any one time. Such
Sublicenses shall be for evaluation purposes only and shall be for a period
not to exceed thirty (30) days. The Reseller shall pay Oracle Sublicense
Fees for any Trial Sublicenses in excess of thirty (30) days. Each such
Trial Sublicense shall be Sublicensed under a Sublicense agreement.
1.5 Distributors
The Reseller's right to market and grant Sublicenses of the Full Use or
Deployment Programs hereunder shall be limited to the Reseller only. The
Reseller shall not appoint any third party to distribute the Programs
without Oracle's prior written consent.
1.6 Documentation
Oracle shall deliver one copy of the applicable Documentation with each
order of Programs for Sublicensing to Sublicensees.
During the Term of this Addendum, the Reseller may order Oracle
documentation for the Programs for resale to its Sublicensees at Oracle's
standard fees in effect when each order is placed less the Discount
Percentage corresponding to the List Price of Documentation for a single
order.
List Price of Documentation Discount Percentage
--------------------------- -------------------
(Single Order)
--------------
$*** - $*** ***%
$*** - $*** ***%
$*** - and over ***%
2. SUBLICENSE FEES
2.1 Sublicense Fees and Rate
For each copy of the Programs Sublicensed by the Reseller, the Reseller
agrees to pay Oracle a Sublicense fee equal to *** percent (***%) of the
applicable license fee for each such Program, as specified in the
applicable Price List and Reseller Price List supplement to such Price List
in effect at the time the applicable Programs are Sublicensed.
Sublicense fees shall be due and payable on the date that Oracle ships
the applicable Programs and shall be deemed overdue if not paid within
thirty-one (31) days of the due date.
2.2 Price List for Sublicenses
As set forth in the Agreement, the applicable Price List for determining
Sublicense fees shall be the standard Price List in effect at the time the
Program is Sublicensed.
Notwithstanding any other provision of this Agreement, if the Reseller
issues a written Sublicense quote and such quote is accepted by the
applicable Sublicensee, for a period of ninety (90) days after the date of
submission of the quote to the Sublicensee, the Sublicense fee applicable
to the Programs identified in the quote shall be based on the Price List in
effect on such date.
2.3 Users
<PAGE>
The Sublicense fees for a Program shall be based and priced on the
applicable User Level for the maximum number of Users for such Program, as
specified in the Price List. The Reseller shall have the right to
Sublicense Programs on any User basis specified in the Price List in effect
at the time the applicable Program is Sublicensed.
3. TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for one (1) year (the "Term"), unless
terminated as provided in the Agreement. Any renewal of this Addendum shall
be subject to renegotiation of terms and fees.
4. TERRITORY
The Reseller shall have the right to market and grant Sublicenses of
Full Use or Deployment Programs in the United States only (the
"Territory").
5. TECHNICAL SUPPORT
5.1 Technical Support for Sublicensees
A Sublicensee may acquire Technical Support services for Sublicensed
Full Use or Deployment Programs from Oracle at Oracle's standard rate and
fee in effect at the time such Technical Support services are ordered under
an Oracle Technical Support Services Agreement executed by the applicable
Sublicensee and Oracle.
5.2 Technical Support Fees
Oracle agrees that the Reseller shall have the right to offer Oracle
annual Technical Support services to Sublicensees in the United States that
are currently acquiring Full Use or Deployment Program Sublicenses. The
Reseller shall only offer Oracle Technical Support Services with respect to
the initial first year of Technical Support for a Sublicensed Program. The
Reseller shall only offer Oracle annual Technical Support services to
Sublicenses provided that:
A. Oracle receives from the Sublicensee an executed, standard Oracle
Technical Support Services Agreement, or other terms to govern the
Technical Support services as agreed to in writing by Oracle and the
Sublicensee;
B. The Full-Use or Deployment Programs are currently Sublicensed and
installed by the Reseller;
C. The Reseller pays Oracle its required Sublicense fee for the
applicable Sublicensed Programs as provided under the Agreement, and the
Reseller pays Oracle the applicable Technical Support services fees as set
forth herein in advance;
D. The Reseller's Sublicense of the Full Use or Deployment Programs
coincides with the agreement to provide Technical Support Services for such
Programs; and
E. The net Technical Support services fees represent new Technical
Support revenue to Oracle.
The Technical Support services fees payable by Reseller as provided
above shall be Oracle's standard rates for such services as provided under
the Price List in effect at the time the Technical Support services are
ordered, discounted by *** percent (***%).
6. SUBLICENSE REPORTS
With each order for Programs for Sublicense to a Sublicensee, the
Reseller shall send Oracle a report detailing each such Sublicensed Full
Use or Deployment Program: Sublicensee name, address, make/model and
operating system of the Designated System, Full Use or Deployment Programs,
maximum number of licensed users, whether the Sublicense is a Trial
Sublicense, total Sublicense fees and Technical Support Fees due to Oracle,
and specific descriptions of the integrated System and the Value-Added.
7. ADDITIONAL LICENSES
During the Term, the Reseller may order production release versions of
Oracle off-the-shelf Programs available as production release as of the
Effective Date of this Addendum and listed on the Price List in effect as
of such date. The license fee for Development Licenses shall be equal to
Oracle's standard list license fees in effect when an order is placed. The
Reseller shall have the right to order Programs for use as Marketing
Support Licenses at no further charge to the Reseller. The Reseller may
obtain Technical Support services from Oracle for such Programs under
Oracle's applicable Technical Support fees and policies in effect when such
services are ordered.
2
<PAGE>
The Effective Date of this Addendum shall be January 24, 1995
----------------
Executed by ARIS Corporation: Executed by Oracle Corporation:
Authorized Signature: /s/ Paul Song Authorized Signature:
---------------- --------------
Name: PAUL SONG Name:
-------------------------------- ------------------------------
Title: PRESIDENT Title:
------------------------------- -----------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94085
(415) 508-7000
Oracle is a registered trademark of Oracle Corporation.
CONFIDENTIAL: VIOLATES ORACLE POLICY TO DISTRIBUTE OUTSIDE ORACLE.
<PAGE>
AMENDMENT ONE
to the
RESELLER FULL USE SUBLICENSE ADDENDUM
to the
RESELLER AGREEMENT
between
ARIS CORPORATION
and
ORACLE CORPORATION
This Amendment One shall serve to amend the Reseller Full Use Sublicense
Addendum dated January 24, 1995 (the "Addendum") to the Reseller Agreement
between Aris Corporation (the "Reseller") and Oracle Corporation ("Oracle")
dated January 24, 1995 (the "Agreement").
The Addendum is amended as follows:
1. Notwithstanding any other provisions of the Addendum, the Term of the
Addendum shall hereby be extended until January 24, 1997.
2. Add the following new paragraph to the end of Section 1.6:
"During the Term of this Addendum, the Reseller may order Oracle
documentation for the Programs for resale to its Sublicensees at Oracle's
standard fees in effect when each order is placed less the Discount
Percentage corresponding to the List Price of Documentation for a single
order."
<TABLE>
<CAPTION>
List Price of Documentation Discount Percentage
--------------------------- -------------------
(Single Order)
--------------
<S> <C>
$*** - $*** ***%
$*** - $*** ***%
$*** - and over ***%
</TABLE>
Other than the modifications set forth above, the terms and conditions of the
Addendum and the Agreement remain unchanged and in full force and effect.
The Effective Date of this Amendment One is October 7, 1996
ARIS CORPORATION ORACLE CORPORATION
By: /s/ Jay Griffin By: /s/ Derek T. Schaefer
---------------------- ---------------------------
Name: JAY GRIFFIN Name: DEREK T. SCHAEFER
-------------------- -------------------------
Title: VP SALES & MARKETING Title: RAS SUPERVISOR
----------------------- ALLIANCES SALES SUPPORT
------------------------
<PAGE>
AMENDMENT TWO
to the
RESELLER FULL USE SUBLICENSE ADDENDUM
to the
RESELLER AGREEMENT
between
ARIS CORPORATION
and
ORACLE CORPORATION
This Amendment Two shall serve to amend the Reseller Full Use Sublicense
Addendum dated January 24, 1995 (the "Addendum") to the Reseller Agreement
between Aris Corporation (the "Reseller") and Oracle Corporation ("Oracle")
dated January 24, 1995 (the "Agreement").
The Addendum is amended as follows:
1. Notwithstanding any other provisions of the Addendum, the Term of the
Addendum shall hereby be extended until January 24, 1998.
2. The following shall be inserted at the end of the introductory paragraph of
the Addendum:
The term "Reseller" for purposes of this Addendum shall include the
Reseller and the Reseller's wholly or majority owned subsidiaries which are
specified on the attached Subsidiary Exhibit as of the Effective Date. Each
Subsidiary must agree in writing to be bound by the terms of the Addendum.
Other than the modifications set forth above, the terms and conditions of the
Addendum and the Agreement remain unchanged and in full force and effect.
The Effective Date of this Amendment Two is 27 May, 1997.
ARIS CORPORATION ORACLE CORPORATION
By: /s/ Kendall W. Kunz By:
------------------------ ----------------------
Name: KENDALL W. KUNZ Name:
---------------------- --------------------
Title: VICE PRESIDENT Title:
--------------------- -------------------
<PAGE>
SUBSIDIARY EXHIBIT
. Aris Software, Inc.
. Oxford Computer Group Limited
. Noetix Corporation
<PAGE>
ORACLE(R)
COMPLEMENTARY SOFTWARE PROVIDER AGREEMENT
This Complementary Software Provider Agreement (the "Agreement") is between:
Oracle Corporation with its principal place of business at 500 Oracle Parkway,
Redwood City, California 94085 ("Oracle") and Noetix Corp. (legal name) with its
------------
principal place of business at Beaverton, Oregon (the "CSP"). The terms of this
-----------------
Agreement shall apply to each Program license granted and to all services
provided by Oracle under this Agreement. When completed and executed by both
parties, a Development License Order Addendum shall evidence the Program
licenses granted and the services that are to be provided.
1. DEFINITIONS
1.1 APPLICATION PROGRAM(S) AND APPLICATION PACKAGE(S): "Application
Program(s)" shall mean the CSP's value-added application software described in
the attached Application Package Addendum used in conjunction with Programs.
"Application Package(s)" shall mean the Programs coupled with the CSP
Application Programs.
1.2 HARDWARE: "Hardware" shall mean the computer hardware/operating system
combinations Noted on the applicable Development License Order Addendum executed
by the parties for use in conjunction with a Development License Program.
1.3 PRICE LIST: "Price List" shall mean Oracle's standard commercial fee
schedule that is in effect when the Program license or services are ordered by
the CSP.
1.4 PROGRAM(S): "Program(s)" shall mean the computer software programs, or
any portion thereof, specified by the applicable Development License Order
Addendum developed and licensed by Oracle which are generally available for use
on the Hardware. "Program(s)shall refer solely to:(a) the object code computer
software program; (b) written material furnished by Oracle in conjunction with
the Programs including instructions and user guides ("Documentation"); and (c)
Updates. No other Oracle software or products shall be included in the term
"Programs."
1.5 UPDATE(S): "Updates" shall mean a subsequent release of a Program which
is generally made available to Oracle's supported licensees at no additional
charge, other than media and handling charges, if applicable. Update shall not
include any release, option or future product which Oracle licenses separately.
2. LICENSES GRANTED
2.1 DEVELOPMENT LICENSE
In consideration for the Development License fees specified on the
applicable Development License Order Addendum, Oracle grants the CSP a
nonexclusive, nontransferable Development License to use the Programs specified
therein in object code form on the designated Hardware in the United States only
for the following purpose only:
A. Use the Programs on the cpu specified on the applicable Development
License Order Addendum for purposes of: (i) developing the Application
Package, (ii) reproducing the Programs to the extent necessary for
safekeeping and archival purposes, (iii) demonstrating the Programs to
potential customers solely in conjunction with the Application
Programs, and (iv) providing training to CSP employees and customers
solely in conjunction with Application Programs; and
B. Temporarily transfer the Development License to a backup cpu if the
designated cpu is inoperative.
The CSP may not use the Development License for any internal data
processing operations or for any other purpose. The CSP's use of a Development
Program shall be limited to the maximum number of Users of such Program
applicable to such Program under its license form Oracle pursuant to Section 3.2
herein. As used in connection with the CSP, the term "User" shall mean an CSP
employee who is authorized by the CSP to use the Program as provided herein.
Upon the mutual agreement of the parties, the CSP may license additional
Development Licenses for use under this Agreement pursuant to a Development
License Order Addendum. Any and all such orders submitted by the CSP shall be an
offer subject to Oracle's written consent.
For each Development License licensed by the CSP under this
Agreement, the CSP shall have a 15 day Acceptance Period, beginning on the
Commencement Date, in which to evaluate the Development License. During the
Acceptance Period, the CSP may cancel the license by giving written notice to
Oracle and returning the Development License in accordance with Section 3.5
hereof. Unless such cancellation notice is given, the License will be deemed to
have been accepted by the CSP at the end of the Acceptance Period. For the
Purpose of this Section, "Commencement Date" shall mean the date on which the
Development License is delivered to the CSP.
2.2 DOCUMENTATION
For each Development License granted to the CSP, the CSP shall receive
one set of Documentation in softcopy form. Additional documentation may be
ordered from Oracle subject to Oracle's rates and fees in effect at the time the
order is accepted.
2.3 LIMITATIONS ON USE
The CSP shall not use or duplicate the Programs (including the
Documentation) for any purpose other than as specified in this Agreement or make
the Programs available to unauthorized third parties. The CSP shall not (a) use
the Programs for its internal data processing or for processing customer data;
(b) rent, electronically distribute, or timeshare the Programs or market the
Programs by interactive cable or remote processing services or otherwise
distribute the Programs other than as specified in this Agreement; or (c) cause
or permit the reverse engineering, disassembly, or decompilation of the
Programs.
2.4 TITLE
Oracle shall retain all title, copyright, and other proprietary rights
in the Programs and any modifications or translations thereof. The CSP does not
acquire any rights in the Programs other than those specified in this Agreement.
The CSP shall retain title, copyright and other proprietary rights in the
Application Programs and translations thereof.
3. FEE AND PAYMENTS
3.1 CSP MEMBERSHIP FEES
Initial CSP membership fees are specified on the CSP Membership Fee
Addendum with respect to the CSP's admission to the Oracle CSP Program.
3.2 DEVELOPMENT LICENSE FEES
Initial Development License fees are specified on the Development
License Order Addendum. During the Term, CSP may acquire additional Development
Licenses for those Programs for the hardware/operating system combinations which
are available to the CSP under Oracle's CSP policies and fees in effect at the
time the Program is shipped to the CSP. Such Programs may be acquired by the
CSP during the Term using a completed Development License Order Addendum. All
Development License fees for such other additional Development Licenses shall be
based upon the license fees available under Oracle's CSP policies and fees in
effect at the time the Development Licenses are shipped to CSP.
3.3 TECHNICAL SUPPORT FEE
Each year the CSP shall pay Oracle annual Technical Support fees based
on the Technical Support Services Fees for CSPs under Oracle's CSP policies and
fees in effect at the time such Technical Support Services fees are ordered from
Oracle for each Development License. Such fees shall be paid annually in
advance.
All Technical Support Fees paid to Oracle are noncancelable and
nonrefundable. These Technical Support Fees shall be in consideration for
continuation of the services set forth herein.
3.4 GENERAL PAYMENT TERMS
Except as otherwise provided herein, invoices for payment of license
fees shall be payable 30 days from the Commencement Date. Fees due by the CSP
shall not be subject to setoff for any claims against Oracle. All payments made
shall be in United States currency and shall be made without deductions based on
taxes or withholdings, except where such deduction is based on gross income. Any
amounts payable by the CSP hereunder which remain unpaid after the due date
shall be subject to a late charge equal to ***% per month from the due date
until such amount is paid. The CSP agrees to pay applicable media and shipping
charges.
3.5 RETURN OF DEVELOPMENT LICENSES
Before returning any Development Licenses to Oracle, the CSP shall
acquire a Return Material Authorization ("RMA") number from Oracle at (415)
508-1500.
3.6 NEGOTIATION OF RESELLER RIGHTS
At the CSP's request, Oracle agrees to negotiate in good faith with the
CSP to provide the CSP with standard value-added reseller rights for the
Programs to be used in conjunction with the CSP's Application Programs based on
Oracle's policies, rates and fees in effect at the time the CSP requests such
rights.
4. REPORTING
4.1 VERIFICATION
On Oracle's written request, not more frequently than annually, the CSP
shall furnish Oracle with a signed certification (i) verifying that the Programs
are being used pursuant to the provisions of the Agreement, including any User
limitations; and (ii) listing the locations, types and serial numbers of the
cpus on which the Programs are run.
Oracle may, at its expense, audit the number of copies of the Programs
used by the CSP, the cpus on which the Programs are installed, and the number
Users using the Programs. Any such audit shall be conducted during regular
business hours at the CSP's offices and shall not unreasonably interfere with
the CSP's business activities. If any audit reveals that the CSP has underpaid
fees to Oracle, the CSP shall be invoiced for such underpaid fees based on the
Price List in effect at the time the audit is completed. If the underpaid fees
are in excess of five percent (5%), then the CSP shall also pay Oracle's
reasonable costs of conducting the audit. Audits shall be conducted no more than
once annually.
4.2 NOTICE OF CLAIM
The CSP will notify the Oracle legal department promptly in writing of:
A. Any claim or proceeding involving the Programs that come to its
attention; or
B. Any material change in the management or control of the CSP.
5. ORACLE TECHNICAL SUPPORT RESPONSIBILITIES
In consideration for the payment of the technical support fees specified
above, Oracle will provide the CSP with the following technical support services
for the Development Licenses:
A. Updates as they become available;
B. Corrections to errors reported to be in the then-current release of the
Programs, as such corrections become available; and
C. Telephone consultation, assistance and advice.
The CSP shall appoint an on-site technical contact as the liaison with
Oracle for technical support. The technical contact shall be the sole liaison
between Oracle and the CSP for all Program technical support. Oracle may
discontinue technical support to the CSP for any Program in accordance with
Oracle's then-current technical support policies, provided that Oracle generally
discontinues technical support for such Program.
6. TERMS AND TERMINATION
6.1 TERM
This Agreement shall become effective on the Effective Date and shall be
valid for one (1) year (the "Term"), unless terminated as provided below. Any
renewal of this Agreement shall be subject to renegotiation of terms and fees.
6.2 TERMINATION OF AGREEMENT
A. Termination for Breach
Either party may terminate this Agreement prior to the expiration of
the Term in the event that the other party materially defaults in performing
any obligation under this Agreement and such default continues unremedied for a
period of thirty (30) days following written notice of default.
B. Force Majeure
Neither party shall be liable to the other for failure or delay in the
performance of a required obligation if such failure or delay is caused by
strike, riot, fire, flood, natural disaster, or other similar cause beyond such
party's control, provided that such party gives prompt written notice of such
condition and resumes its performance as soon as possible, and provided further
that the other party may terminate this Agreement if such condition continues
for a period of one hundred eighty (180) days.
6.3 RIGHTS UPON TERMINATION OR EXPIRATION
Upon expiration or termination of this Agreement:
A. Other than as specified in Subparagraph 6.3.B below, all the CSP's
rights to use the Programs shall cease;
B. Unless the termination is for default by the CSP, the CSP may
continue using the release of the Programs then in the CSP's possession on the
cpu's for which Development Licenses were granted, solely for the purpose of
maintaining the compatibility between the Application Programs and the Programs.
Such continued use of the Programs shall be subject to all the provisions of
this Agreement; and
C. Oracle shall no longer have any obligation to provide the CSP with
technical support services. However, upon mutual agreement of the parties,
Oracle may provide technical support for Development Licenses under Oracle's
fees and policies in effect at the time such Technical Support Services are
provided to the CSP.
6.4 EFFECT OF EXPIRATION OR TERMINATION
If this Agreement expires or is terminated for any reason, neither party
will be liable to the other because of such expiration or termination for
damages for the loss of prospective profits, anticipated sales, or good will.
Provided, however, that expiration or termination of this Agreement shall not
relieve either party from its liability to pay any fees which have accrued to
the other party as of the expiration or termination, or which accrue after such
expiration or termination. Any election to terminate under this Article 6 shall
not limit either party's right to seek equitable or other appropriate relief
relating to the breach.
6.5 SURVIVAL
The parties' right and obligations under Sections 2.3, 2.4 and Articles
4, 6, 7 and 8 shall survive expiration or termination of this Agreement.
7. REPRESENTATIONS AND WARRANTIES
7.1 INFRINGEMENT INDEMNITY
Oracle will defend and indemnify the CSP against any claim that the
Programs licensed and used within the scope of this Agreement infringe a United
States copyright or patent, provided that (a) the CSP notifies Oracle in writing
within thirty (30) days of the claim; (b) Oracle has sole control of the defense
and all related settlement negotiations; and (c) at Oracle's request, the CSP
provides Oracle with all necessary assistance, information, and authority to
perform the above; reasonable out-of-pocket expenses incurred by the CSP in
providing such assistance will be reimbursed by Oracle.
Oracle shall have no liability for any claim of infringement based on
(a) use of a superceded or altered release of the Programs if such infringement
would have been avoided by the use of a current, unaltered release of the
Programs that Oracle provides to the CSP.
In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at its expense, to (a) modify the
Programs to be noninfringing; (b) obtain for the CSP a license to continue using
the Programs; or (c) terminate this Agreement and return to the CSP the License
fees paid, prorated over the term of the Agreement. This Section 7.1 states
Oracle's entire liability for infringement.
7.2 WARRANTY
Oracles warrants that the Programs will be capable of performing the
functions described in the Documentation when operated on the appropriate
hardware/operating systems environment. ORACLE DOES NOT WARRANT THAT THE
PROGRAMS WILL
<PAGE>
RUN PROPERLY ON ALL HARDWARE, THAT THE PROGRAMS WILL MEET REQUIREMENTS OF
THE CSP OR OPERATE IN THE COMBINATIONS WHICH MAY BE SELECTED FOR USE BY THE
CSP, THAT THE OPERATION OF THE PROGRAMS WILL BE UNINTERRUPTED OR ERROR
FREE, OR THAT ALL PROGRAM ERRORS WILL BE CORRECTED.
7.3 EXCLUSION
THE WARRANTIES STATED IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF
ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.4 LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF PROFITS, REVENUE, DATA,
OR USE INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN
CONTRACT OR TORT, EVEN IF THE OTHER PARTY OR ANY OTHER PERSON HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Oracle's liability for damages
hereunder for any cause whatsoever shall in no event exceed the amounts
received by Oracle from the CSP with respect to the particular transaction
which gives rise to the liability. The provisions of this Article 7
allocate the risks under this Agreement between Oracle and the CSP. The
fees provided for in this Agreement reflect this allocation of risks and
the limitation of liability specified herein.
7.5 EQUITABLE RELIEF
The CSP acknowledges that any breach of its obligations with respect
to proprietary rights of Oracle will cause Oracle irreparable injury for
which there are inadequate remedies at law and that Oracle shall be
entitled to equitable relief in addition to all other remedies available to
it.
8. GENERAL TERMS AND CONDITIONS
8.1 NONDISCLOSURE
Neither party shall, without first obtaining the written consent of
the other party disclose the terms and conditions of this Agreement, except
as may be required to implement and enforce the terms of this Agreement, or
as may be required by legal procedures or by law. No other information
exchanged between the parties shall be deemed confidential unless the
parties otherwise agree in writing. The CSP shall not disclose the results
of benchmark tests or other evaluation of the Programs to any third party
without Oracle's prior written approval.
8.2 COPYRIGHTS
The Programs are copyrighted by Oracle. The CSP shall retain all
Oracle copyright notices on the Programs used by the CSP under its
Development Licenses or Marketing Support Licenses. The CSP shall include
the following on all copies of the Programs in software Application
Packages incorporating the Programs distributed by the CSP:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Alliance Member containing the following:
1. A "c" in a circle and the word "copyright";
2. The Alliance Member's name;
3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on screen
for any software Application Packages incorporating the Programs, and the
diskette or tape labels. Notwithstanding any copyright notice by the CSP to
the contrary, the copyright to the Program included in any such Application
Package shall remain in Oracle. Other than as specified above, on any
reproduction or translation of any Programs, Documentation, or promotional
material, the CSP agrees to reproduce Oracle's copyright notices intact.
8.3 TRADEMARKS
"Oracle" and any other trademarks and service marks adopted by Oracle
to identify the Programs and other Oracle products and services belong to
Oracle; the CSP will have no rights in such marks except as expressly set
forth herein and as specified in writing from time to time. The CSP's use
of Oracle's trademarks shall be under Oracle's trademark policies and
procedures in effect from time to time. The CSP agrees not to use the
trademark "ORACLE," or any mark beginning with the letters "Ora," or any
other mark likely to cause confusion with the trademark "ORACLE" as any
portion of the CSP's tradename, trademark for the CSP's Application
Program, or trademark for any other products of the CSP. The CSP shall have
the right to use the trademark "ORACLE" and other Oracle trademarks solely
to refer to Oracle's Programs, products and services.
The CSP agrees with respect to each registered trademark of Oracle, to
include in each advertisement, brochure, or other such use of the
trademark, the trademark symbol "circle R" and the following statement:
_____is a registered trademark of Oracle Corporation, Redwood City,
California
Unless otherwise notified in writing by Oracle, the CSP agrees, with
respect to every other trademark of Oracle, to include in each
advertisement, brochure, or other such use of the trademark, the symbol
"TM" and the following statement:
_____is a trademark of Oracle Corporation, Redwood City, California
The CSP shall not market the Oracle Programs in any way which implies
that the Oracle Programs are the proprietary product of the CSP or of any
party other than Oracle. Oracle shall not have any liability to the
<PAGE>
CSP for any claims made by third parties relating to the CSP's use of
Oracle's trademarks.
8.3 RELATIONSHIP BETWEEN PARTIES
In all matters relating to this Agreement, the CSP will act as an
independent contractor. The relationship between Oracle and the CSP is that
of licenor/licensee. Neither party will represent that it has any authority
to assume or create any obligation, express or implied, on behalf of the
other party, nor to represent the other party as agent, employee,
franchisee, or in any other capacity. Nothing in this Agreement shall be
construed to limit either party's right to independently develop or
distribute software which is functionally similar to the other party's
product, so long as proprietary information of the other party is not
included in such software.
8.4 ASSIGNMENT
The CSP may not assign or otherwise transfer any rights under this
Agreement without Oracle's prior written consent.
8.5 NOTICE
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
deposited in first class mail to the addresses listed herein for the CSP
and for Oracle.
To expedite order processing, the CSP agrees that Oracle may treat
documents faxed by the CSP to Oracle as original documents; nevertheless,
either party may require the other to exchange original signed documents.
8.6 GOVERNING LAW/JURISDICTION
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the substantive and procedural laws of the
State of California and shall be deemed to be executed in Redwood City,
California. The parties agree that any legal action or proceeding relating
to this Agreement shall be instituted in any state or federal court in San
Francisco or San Mateo County, California. Oracle and the CSP agree to
submit to the jurisdiction of, and agree that venue is proper in, these
courts in any such legal action or proceeding.
8.7 SEVERABILITY
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in
full force and effect.
8.8 EXPORT
The Program shall not be exported outside the United States.
8.10 WAIVER
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or breach.
Except for actions for non-payment or breach of Oracle's proprietary rights
in the Program, no action, regardless of form, arising out of this
Agreement may be brought by either party more than one year after the
cause of action has accrued.
8.11 DUPLICATE ORIGINALS
This Agreement may be executed in any number of counterparts, each of
which shall be an original and all of which shall constitute together but
one and the same document.
8.12 ENTIRE AGREEMENT
This Agreement, with all attached exhibits, sets forth the entire
Agreement between the parties and supersedes prior proposals, agreements
and representations between them, whether written or oral. This Agreement
may be changed only by mutual Agreement of the parties in writing.
The Effective Date of this Agreement shall be January 8, 1997.
---------------
<TABLE>
<S> <C>
EXECUTED BY THE ALTERNATE MEMBER: EXECUTED BY ORACLE CORPORATION:
AUTHORIZED SIGNATURE: /s/ David Melin AUTHORIZED SIGNATURE:
---------------- ---------------------
NAME: NOETIX CORP. NAME:
--------------------------------- -------------------------------------
TITLE: PRESIDENT TITLE:
-------------------------------- ------------------------------------
</TABLE>
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94085
(416) 506-7000
Oracle is a registered trademark of Oracle Corporation.
1-95
<PAGE>
CAI RENEWAL
COOPERATIVE APPLICATIONS
DESIGN MIGRATION ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
Noetix Corp., (the "CSP") and shall be governed by the terms of the
Complementary Software Provider Agreement between the CSP and Oracle effective
September 1, 1996 (the "Agreement") and the terms set forth below.
1. CAI Membership and Privileges
During the Term of this Addendum, the CSP shall be admitted as a
member of Oracle's Cooperative Applications initiative (the "CAI"). The CAI
has two membership tiers which reflect the status of a member in the
integration process: (i) CAI Applicant Member; and (ii) CAI Approved
Member. Upon execution of this Addendum, the CSP shall be designated an
Applicant Member. As an Applicant Member, within six (6) months of the
Effective Date hereof, the CSP shall complete the analysis and detail
design necessary to begin integration of the CSP's Application Program with
the Oracle Applications Programs. Within twelve (12) months of the
Effective Date hereof, the CSP shall complete the development of the
integrated program set and documentation and the testing of such integrated
program set and shall submit such integrated program set to Oracle for
approval in accordance with Paragraph E below. If the CSP is unable to
complete the applicable tasks within the relevent six (6) month period, the
CSP shall not be eligible to participate in any CAI or Oracle Applications
marketing events. As a member of the CAI, the CSP shall be entitled to the
following privileges:
A. The CSP may order from Oracle temporary Development Licenses for
each of the Oracle Program designated as Oracle Financial and Government
Financial Applications Programs, Manufacturing Applications Programs,
Distribution Application Programs, Project Application Programs and/or
Human Resources Applications Programs (for the purposes of this Addendum,
the "Oracle Applications Programs") for use for the purposes provided under
this Addendum at the fees set forth in this Addendum. Each such Development
License shall be licensed to the CSP during the Term of this Addendum and
shall terminate upon expiration or termination of such Term.
Notwithstanding any other provision of the Agreement, the CSP shall only
use the Development Licenses for Oracle Applications Programs acquired
under this Addendum solely for the purposes of completing integration of
the CSP's Application Program with the Oracle Applications Programs and
demonstrating the Oracle Applications Programs in conjunction with the
CSP's Application Program on the applicable Designated System;
B. The CSP may order OracleBRONZE Technical Support Services for the
Development Licenses licensed hereunder at the fees set forth in this
Addendum;
C. Oracle will provide Integration services from Oracle's Design Migration
Services Group ("DMS") for the purposes of Integrating the CSP's
Applications Programs with the Oracle Applications Programs, subject to
execution of a standard Oracle Services Agreement. Integration services,
beyond seven (7) days, ordered by the CSP will be provided under the DMS
policies and rates in effect on the date such services are ordered. The CSP
acknowledges and agrees that such services shall be subject to availability
of DMS personnel and shall not be performed by any member of the Oracle
Consulting or Development organization;
D. The CSP shall have the right to order DMS services related to the
Oracle Applications Programs extensions and enhancements, and Oracle shall
consider each such request in accordance with its business practices,
pricing and policies and the availability of DMS personnel;
E. Upon complete integration of the CSP's Application Program with the
latest release of the Oracle Applications Programs, the CSP may apply to
DMS to review the functionality of the integrated program set to determine
if the applicable CSP's Application Program meets the minimum requirements
for functioning in accordance with Oracle's CAI Integration Standards. If
Oracle determines that the version of the CSP's Application Program meets
such Standards, DMS shall approve and designate such version of the CSP
Application Program as approved under such Standards. In the event the CSP
issues a new release of the Application Program which incorporates new
functionality, the CSP shall notify Oracle of such new release and shall
apply for re-approval of the Application Program as set forth herein. The
new release shall not be deemed approved by Oracle until Oracle notifies
the CSP of its approval in writing. To be approved, a CSP Application
Program must be integrated with the then current release of the applicable
Oracle Application Program. Approved CSP Application Programs must be
upgraded to new releases of the applicable Oracle Application Program
within three (3) months of the general availability of such new releases to
maintain approved status;
F. Oracle shall compile a list of CSP Application Programs designated as
approved under the Standards and shall publish such list on a periodic
basis. If the CSP's Application Program is designated as approved, Oracle
shall include such Application Program in such list; and
G. Oracle and the CSP may develop joint marketing plans for the purpose
of promoting the distribution of the CSP's Application Programs in
conjunction with the distribution of the Oracle Applications Programs.
2. CAI Fees
A. Membership Fees
In consideration of the rights granted to the CSP under this Addendum
during the Term, the CSP shall pay to Oracle a membership fee of ***
<PAGE>
dollars ($***). This fee shall be due and payable within thirty (30) days of
the Effective Date specified below. This payment obligation is noncancelable and
the sum paid is nonrefundable.
B. Development License Fees
During the Term, the CSP may order production release versions of Oracle
off-the-shelf Application Programs available as production release as of the
Effective Date of this Addendum at no charge for the sole purposes of developing
and demonstrating the CSP's Application Program. Such Development License is for
one (1) Designated System of up to eight (8) Named Users. The CSP may order
Additional Development Licenses at no charge with OracleBRONZE Technical Support
for those licenses at prices set forth in Paragraph 2C of this Addendum.
C. Technical Support Services
The CSP may obtain Technical Support services from Oracle for Development
Licenses acquired hereunder under Oracle's applicable Technical Support fees and
policies in effect when such services are ordered. During the Term, the CSP
shall have the right to acquire annual OracleBRONZE Technical Support Services
for the Development Licenses for the Designated System at a fee equal to ***
percent (***%) of then-current standard named user support prices for the
Application Development Licenses, provided that the minimum OracleBRONZE fee
shall be equal to *** dollars ($***) with a minimum annual OracleBRONZE fee of
*** dollars ($***) per country per year, payable annually in advance. The CSP
shall have the right to acquire annual OracleBRONZE Technical Support services
for the Development Licenses for any subsequent Designated System at the fees
stated above, payable annually in advance.
3. Term
This Addendum shall become effective on the Effective Date of this Addendum
and shall be valid for one (1) year (the "Term"), unless terminated as provided
in the Agreement. Any renewal of this Addendum shall be subject to renegotiation
of terms and payment of annual membership renewal fees. As of the Effective
Date, the annual renewal fee is *** dollars ($***) per year. The CSP may renew
its Technical Support annually under Oracle's Technical Support fees and
policies in effect at the time of renewal.
The Effective Date of this Addendum shall be Feb 20, 1997.
------------
<TABLE>
<S> <C>
EXECUTED BY CSP: EXECUTED BY ORACLE CORPORATION:
AUTHORIZED SIGNATURE: /s/ David Melin AUTHORIZED SIGNATURE: /s/ Jeremy Rosenberg
---------------- ---------------------
NAME: DAVID MELIN NAME: JEREMY ROSENBERG
--------------------------------- -------------------------------------
TITLE: PRESIDENT TITLE: MANAGER-VERTICAL ACCOUNTS
-------------------------------- ALLIANCES SALES SUPPORT
------------------------------------
</TABLE>
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood City, CA 94085
(416) 506-7000
Oracle is a registered trademark of Oracle Corporation.
2
<PAGE>
AMENDMENT ONE
to the
COOPERATIVE APPLICATIONS INITIATIVE ADDENDUM
between
Noetix Corp.
and
ORACLE CORPORATION
This document ("Amendment ___") amends the Cooperative Applications Initiative
Addendum, dated February 20, 1997, and all amendments and addendums thereto (the
"Addendum") between Noetix Corp., ("Customer") and Oracle Corporation
("Oracle"). The parties hereby agree to amend the Addendum as follows:
1. Insert the following as a new Section 2.D in the Addendum:
"D. Renewal Transition Program
If the Effective Date of this Addendum is on or before October 1, 1996,
the Alliance Member may obtain OracleBRONZE Technical Support for its
Development License(s) from October 1, 1996 to September 30, 1997 at a fee
equal to *** percent (***%) of then-current standard named user support
prices for the Application Development License, provided that the minimum
OracleBRONZE fee shall be equal to *** dollars ($***) with a maximum
annual OracleBRONZE fee of *** dollars ($***) per country per year,
payable annually in advance. Thereafter, the Alliance Member may obtain
OracleBRONZE Technical Support at Oracle's CAI support fees and policies
in effect at the time of renewal."
Subject to the modifications herein, the Addendum shall remain in full force and
effect.
The Effective Date of this Amendment One is February 20, 1997.
Noetix Corp. ORACLE CORPORATION
By: /s/ David Melin By: /s/ Jeremy Rosenberg
---------------------------- ------------------------------
Name: DAVID MELIN Name: JEREMY ROSENBERG
-------------------------- ----------------------------
Title: PRESIDENT Title: MANAGER-VERTICAL ACCOUNTS
------------------------- ALLIANCES SALES SUPPORT
---------------------------
Page 1
<PAGE>
EXHIBIT 10.44
BOEING INFORMATION & SUPPORT SERVICES ENGINEERING/TECHNICAL CONTRACT LABOR TERMS
AND CONDITIONS REV. 1 7/96 ARIS
1. CONTRACT ACCEPTANCE
This Contract includes the provisions in the Purchase Order, these
Engineering/Technical Contract Labor Terms and Conditions, and all of the
specifications, technical descriptions, statements of work, drawings, designs,
documents, and other requirements and provisions attached to, incorporated into
or otherwise made a part of this Contract by Buyer. Buyer shall not be bound by
and specifically objects to any term or condition whatsoever which is different
from or in addition to the provisions of this Contract, whether or not such term
or condition will materially alter this Contract. Any such term or condition
shall be deemed void and of no effect whatsoever, whether contained in any order
acknowledgment or acceptance. Seller commencement of performance, or acceptance
of this Contract, in any manner shall conclusively evidence agreement to this
Contract as written.
2. DEFINITIONS
Whenever used in this Contract, the following terms, when capitalized, shall
have the following meanings:
"Authorized Buyer Materiel Representative" means the representative of Boeing
Information & Support Services Materiel Department identified in the Purchase
Order (or their designee), who is authorized by Buyer to act on behalf of Buyer
in business transactions with Seller.
"Buyer" means The Boeing Company. Any references in this Contract to "The Boeing
Company," "Boeing Defense & Space Group" "Boeing Commercial Airplane Group," (or
any acronym or similar division or unit designations), shall mean "Buyer."
"Personnel" means Seller's employees, subcontractors, or employees of
subcontractors.
"Seller" means the entity identified in the Purchase Order who agrees to perform
services.
"Work" means services performed or to be performed by Seller or its employees
under any Purchase Order.
3. ORDER OF PRECEDENCE
In the event of any inconsistency within or relating to this Contract, the
following order of precedence wilt apply:
a. The Purchase Order.
b. These Engineering/Technical Contract Labor Terms and Conditions.
4. SERVICES TO BE FURNISHED
Seller shall furnish to Buyer the services of Seller's employees approved in the
order by Buyer. Such services shall be furnished at the place or places and
during the period or periods specified in the order. Unless otherwise provided
in the order, Seller's employees shall provide only those services that are
within the scope of their assignment or as Buyer shall from time to time
request.
5. COMPENSATION
As full compensation for the performance of this order, unless otherwise
provided in the order, Buyer shall pay Seller at the rates set forth in the
order for all services provided hereunder by Seller's employees plus, for any
travel required and authorized by Buyer, any travel, per diem, or other costs or
allowances specifically provided in Schedule A to the order. Said rates cover
all profit and all wages and salaries, overhead and other costs and expenses of
Seller incident to this order, except such costs and expenses as may be covered
by an travel, per diem, or other costs or allowances specifically provided for
in the order. Buyer's standard work week begins on Friday and ends on the
following Thursday. Overtime or other premium rates, if any, will not be paid
unless the performance of the overtime or other premium-pay work has the prior
written approval of Buyer.
a. Overtime. Overtime shall be paid at the overtime labor rates for qualifying
Seller's personnel. Overtime compensation shall be the sum of any given straight
time billing rate plus one half of the direct labor rate. Overtime shall be
determined as follows.
(1) Time in excess of eight (8) hours in any one day of a 8/40 week or time in
excess of ten (10) hours in any one day of a 10/40 week or time in excess of
normal work day hours in any one day of a 9/80 schedule.
(2) Time in excess of forty (40) hours in any one standard work week not paid
under a.(1 ) above. Actual time worked during a holiday shall be counted towards
the regular forty (40) hours.
(3) Time worked on a Holiday as defined in e. below.
b. Assignment Allowance. The assignment allowance rate shall be paid to eligible
employees per the rates contained in Schedule A. Employee's are eligible for
assignment allowance provided:
(1) The employees most recent place of work was outside one hundred (100) miles
of Buyer's facility, determined by the Rand McNally Road Atlas and
(2) The employee certifies upon initial assignment that he/she has no personal
residence within one hundred (100) miles of Buyer's facility, determined by the
Rand McNally Road Atlas.
c. Relocation. Seller shall be paid the equivalent of air coach fare one (1) way
from origin to Buyer, if qualified for assignment allowance under b. above.
Value of fare must be pre-approved by Buyer Travel. Agencies will not be
reimbursed if their employees travel prior to having a firm report date.
d. Emergency Leave or Leave Without Cause. Buyer shall not be billed the daily
hourly rates or the assignment allowance rate for any Seller's personnel that
are absent from Buyer's facility or otherwise not performing services due to
illness, suspended operations, or any other reason.
<PAGE>
e. Holidays. Seller's employees shall observe only the holidays and holiday
periods observed by Buyer's employees with whom Seller's employees work. Any
work performed by Seller's employees on such a holiday or during any holiday
period will be compensated by Buyer as provided in 5.a.(3) above.
f. Invoices and Payments. Payments shall be made per the terms stated in the
order. All payments shall be subject to adjustments for amounts subsequently
found upon audit or otherwise to have been improperly invoiced.
9. Inventor Motivation. In addition to the compensation under this Contract,
Buyer may, in its sole and absolute discretion, make payments to Seller under
certain conditions (e.g., upon the filing or issuance of certain patent
applications or patents) which, in Buyer's sole judgment, reflect technological
innovation that results from work performed under this Contract or any
predecessor to it by Personnel. Whenever it determines such payments will be
made, Buyer will notify Seller and the Personnel who, in Buyer's sole judgment,
have demonstrated such technological innovation, and will show such payments as
separate line items in its accounting of the payments made to Seller under this
Contract. Seller will pass such payments on to the named Personnel promptly, and
will make the named Personnel available, upon request, to participate in Buyer
sponsored inventor recognition ceremonies.
6. TAXES
All taxes, including, but not limited to, federal, state and local income taxes;
franchise taxes; federal state and local sales and use taxes (except sales or
use taxes imposed on account of a transaction made under this Contract); gross
receipts taxes; property taxes; value-added taxes and custom duty taxes, are
deemed to be included in the price of the Services. If state or local sales or
use tax is applicable to any of the Services, it will be so noted elsewhere in
this Contract, and Seller shall bill the tax separately on its invoice.
7. DISCIPLINE OF PERSONNEL
Discipline of Seller's employees shall be Seller's responsibility. While on
premises under Buyer's control, Seller's employees shall obey all applicable
plant rules.
8. INSTALLATION (SITE) SECURITY
Seller, its employees and other agents, and employees and other agents of
subcontractors, shall comply fully with physical, fire, or other published
security regulations while on premises under Buyer's control.
9. INDEPENDENT CONTRACTOR AND LABOR REQUIREMENTS
a. Seller is providing services as an independent Contractor. Personnel assigned
by Seller are not employees of Buyer, but are Seller's employees and subject to
the rules, regulations and management of Seller. Seller's employees shall be
paid exclusively by Seller and Seller shall be responsible for compliance with
all requirements relating to its employees under local, state, and federal laws
and regulations, including but not limited to laws and regulations governing
minimum wage, social security, immigration and naturalization, unemployment
insurance, income tax and workmen's compensation. All tax obligations
associated with this agreement are the sole responsibility of Seller. In the
event Buyer is assessed or notified of such taxes, Buyer shall notify Seller and
Seller shall promptly pay the amount of such assessments to the proper
authority. At the request of Buyer, Seller shall give reasonable evidence of
compliance with all such legal requirements and obligations.
b. All work shall be performed at Buyer's facilities unless otherwise requested
and authorized by Buyer.
c. Seller will only employ on Buyer's assignments persons who are qualified to
perform the tasks specified buyer. Prior to the issuance of any Order, Seller
will furnish to Buyer the name and job assignment of each person then available
for work and a resume of his or her qualifications. Seller warrants that each
resume submitted represents a complete and accurate employment history and that
the individual is qualified for the designated assignment. Misrepresentation,
gross omissions or falsifications will be cause for removal of Seller s employee
and disallowance with (d) below. Such practices by Seller will be considered
cause for contract termination.
Seller will also furnish other information about Seller's personnel as
reasonably requested by Buyer. No personnel of Seller will be assigned to
perform services for Buyer unless the person, and his or her qualifications,
background, assignment, billing rate, report date, and availability, are
acceptable to Buyer. Buyer is not required to state why any person is rejected
or removed from an assignment.
d. Seller shall, upon the written request of Buyer, remove any of Seller's
personnel from the assignment with Buyer and immediately furnish a qualified
replacement. If such person is removed within the first ten (10) working days
after reporting for work, Seller shall receive no compensation of any kind or
amount for such person. No employee's billing rate shall be changed except by
mutual agreement.
e. Seller shall advise Buyer of the security clearance held by each of Seller's
personnel furnished under any Order.
f. Seller shall not remove, reassign, transfer or otherwise make
available any of its employees assigned to provide services under this Order
without the express prior written consent of Buyer, except resumes offered by
Seller for consideration for assignment will automatically expire if Buyer does
not request the person within 30 days of receipt of resume by Buyer.
<PAGE>
9. Neither Seller nor any of its employees shall disclose to any Buyer personnel
the compensation paid Seller. Seller shall include this nondisclosure obligation
in contracts or agreements with its employees and shall orally advise them of
the obligation.
h. Consultants and/or subcontractors for these services shall not be used by
Seller without the express prior written consent of Buyer shall not be
unreasonably withheld.
10. COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS
Seller warrants that in the performance of this Order, it will comply with
applicable federal, state and local laws and regulations, including but not
limited to the applicable provisions of the Fair Labor Standards Act of 1938 as
amended (29 U.S.C. Sec. 201-219) and Executive Order 11246, as amended, and any
regulations issued pursuant thereto.
11. INTELLECTUAL PROPERTY
a. Work Product. All technical work product, including, but not limited to,
ideas, information, data, documents, drawings, software, software documentation,
designs, specifications, and processes produced by Seller's employees,
subcontractors, or employees of subcontractors (Personnel), either alone or with
others, in the course of or as a result of any work performed under this
Contract will be the exclusive property of Buyer and be delivered to Buyer
promptly upon request.
b. Inventions and Patents. All inventions conceived, developed, or first reduced
to practice by Personnel, either alone or with others, in the course of or as a
result of any work performed by Personnel under this Contract, and any patents
based on any such inventions (both domestic and foreign), will be the exclusive
property of Buyer. Seller and Personnel will (1) promptly disclose all such
inventions to Buyer in written detail and (2) execute all papers, cooperate with
Buyer, and perform all acts necessary or appropriate in connection with the
filing, prosecution, maintenance, or assignment of related patents or patent
applications on behalf of Buyer.
c. Works of Authorship and Copyrights. All works of authorship (including, but
not limited to, documents, drawings, software, software documentation,
photographs, video tapes, sound recordings and images) authored or otherwise
created by Personnel, either alone or with others, under this Contract, together
with all copyrights subsisting therein, will be the sole property of Buyer. To
the extent permitted under United States copyright law, all such works will be
works made for hire, with the copyrights therein vesting in Buyer. In all other
cases, the copyrights in such works, including all of the exclusive rights
therein, will be promptly transferred and formally assigned by Seller and/or
Personnel free of charge to Buyer. In order to facilitate the formal assignment
of such copyrights to Buyer, Seller agrees to execute the Assignment and Power
of Attorney included as Attachment A to this Contract and to require each and
every one of the Personnel to execute an Acknowledgment, Assignment, and Power
of Attorney in accordance with Attachment B. Seller further agrees to deliver to
Buyer all executed originals of the documents executed by Personnel in
accordance with this section. Attachments A and B are incorporated into this
Contract by reference.
d. Pre-Existing Inventions and Works of Authorship. Seller and Personnel hereby
grant to Buyer, and to Buyer's subcontractors, suppliers, and customers in
connection with Buyer's products or work being performed for Buyer, an
irrevocable, non-exclusive, paid-up, worldwide license under any patents or
copyrights (whether domestic or foreign) owned or controlled by Personnel at any
time and existing prior to or during the term of this Contract, but only to the
extent that such patents or copyrights would otherwise interfere with Buyer's or
Buyer's subcontractors', suppliers', or customers' use or enjoyment of the work
product, inventions, or works of authorship belonging to Buyer under this
Contract.
e. Treatment of Proprietary Information and Materials. All proprietary,
confidential, and/or trade secret information or data (including all materials
containing or embodying such information or data) belonging to Buyer, or
entrusted to Buyer by others, an becoming known to Personnel in connection with
this Contract (hereinafter "Proprietary Information") will remain the exclusive
property of Buyer; and Personnel will, for the term of this Contract and
thereafter, preserve in confidence, not disclose to others without the prior
written permission of Buyer, and not use (except in the performance of work for
Buyer covered by this Contract) any and all Proprietary Information. At Buyer's
request at any time and, in any event, upon the conclusion of all work under the
applicable Purchase Order or Purchase Orders, the Personnel involved will
deliver to Buyer all tangible embodiments of Proprietary Information.
f. Information and Materials Used or Provided by Personnel. Personnel will, in
the performance of services covered by this Contract, refrain from the unlawful
or unauthorized use or disclosure to Buyer of any trade secrets and/or
confidential information. In addition, Personnel will ensure that, as to all
information disclosed or otherwise provided to Buyer in connection with this
Contract, Buyer may make unlimited use of and freely disclose such information
without incurring any obligation or liability to Personnel or to any other
person or entity.
9. Compliance by Personnel. Seller will require all Personnel to comply with the
requirements of this clause (Intellectual Property). All acts and obligations
assumed by personnel, as contemplated by this clause, are part of the services
performed by Seller under this Contract. Seller will furnish a copy of this
clause to all Personnel, and
<PAGE>
give each of them a reasonable opportunity to read and understand it, before
they are required to execute the Acknowledgment, Assignment, and Power of
Attorney in accordance with Attachment B.
12. SOLICITATION
a. Seller's employees will be allowed to discuss potential employment with The
Boeing Company. Should these discussions lead to an offer of employment, the
candidate may accept after nine (9) months of assignment to Buyer. Buyer will
pay no fees to Seller.
b. Seller agrees that it will not utilize its personnel assigned under any Order
to actively solicit for hire any of Buyer's personnel at any time.
c. Seller agrees that it will not actively solicit for hire the employees of
Buyer for a period of six months after completion of this Order, unless prior
written approval is obtained from Buyer.
13. ASSIGNMENT
This Order shall inure to the benefit of and shall be binding upon the
respective successors and assigns of the parties hereto. The rights, including
Seller's right to receive money, and obligations of the parties may not be
voluntarily assigned or delegated by either party without the express prior
written consent of the other party.
14. GOVERNMENT REQUIREMENTS
Within Seller's invoice or other form satisfactory to Buyer, Seller shall
certify that goods and services covered by this contract were produced in
compliance with Sections 6, 7, and 12, Fair Labor Standards Act, as amended and
the regulations of the U.S. Department of Labor issued thereunder. The equal
opportunity clause set forth in FAR 52.222-26 is incorporated herein by
reference, except "Contractor" means Seller. The Affirmative Action for Special
Disabled and Vietnam Era Veterans clause as set forth in FAR 52.222-35 is
incorporated herein by reference only if contract exceeds $10,000. The
Affirmative Action for Handicapped Workers clause as set forth in FAR 52.222-36
is incorporated herein by reference only if contract exceeds $2,500.
15. SUBCONTRACTING
Seller shall not subcontract any of the personnel assigned to provide services
under this Order without the express prior written consent of Buyer shall not be
unreasonably withheld.
16. TERMINATION
Performance of services under this Order may be terminated in whole or in part
at any time by Buyer by giving Seller written notice of such termination,
specifying the extent and effective date thereof. After receipt of any such
notice, Seller shall stop work hereunder to the extent it relates to the
services terminated and, to the extent requested by Buyer, deliver to Buyer all
completed or partially completed data, writings, recordings, pictures, drawings,
and other information and items produced or obtained in the performance of
services under this Order. In the event of any termination pursuant to this
clause, Seller shall be paid as provided in this Order for all services
performed hereunder and any travel, per diem, or other costs or allowances due
hereunder. Seller shall have no claim against Buyer for services not performed,
anticipatory profits lost, or consequential damages directly or indirectly
caused by any such termination. Except as provided in this clause, any such
termination shall not alter or affect the rights or obligations of the parties
under this Order.
17. AMENDMENTS OF AGREEMENT
This order may not be modified or amended except by an instrument in writing
executed with or subsequent to the execution of this order and signed by
authorized representatives of Buyer and Seller.
18. NOTICES
Any notice or communication pertaining to this order shall be deemed to have
been duly given by a party hereto if served upon or sent to the other by
registered mail or by telegraph. All notices or communications to Buyer from
Seller pertaining to this order shall be addressed as follows:
The Boeing Company Attn: Mark Van Osten, M/S 3U-AA P.O. Box 3707 Seattle, WA
98124-2207
19. WORK INTERRUPTIONS
Notwithstanding any other provision of this Order, Buyer shall not compensate
Seller in any sum or manner whatsoever, including travel, per diem or other
costs or allowances, for any day Seller's personnel do not perform their
services, including but not limited to nonperformance resulting from any strike,
picket line or other labor disturbance.
20. DELAYS
Seller shall be excused from and shall not be liable for any delay in its
performance of the Order, and shall not be deemed to be in default for any
failure of performance thereunder, due to causes beyond its control and not
occasioned by its negligence or fault.
21. RESPONSIBILITY FOR CLAIMS
a. Indemnification by Seller. Seller shall indemnify, defend, and hold harmless
Buyer, its subsidiaries, and their respective agents, officers, directors,
employees and assigns (hereinafter "Indemnitees") from and against all losses,
claims, penalties, fines, liabilities, judgments and expenses, including
expenses related to establishing the right to indemnification, of any kind and
nature whatsoever (hereinafter "Claims"), including without limitation personal
injury or bodily injury to or death of any person (including without limitation
employees of Seller), or loss of or damage to any property, arising out of or
related to Seller's performance of this Agreement, whether or not such
<PAGE>
Claims arise out of the negligence of Buyer, Seller or any other party, and
whether or not such Claims be false, fraudulent or groundless. Except for Claims
brought by or on behalf of Seller or Seller's employees, the foregoing indemnity
shall not apply to the extent such Claims arise out of the negligence of Buyer.
Seller expressly waives any immunity under industrial insurance, whether arising
from Title 51.04.010 et seq. of the Revised Code of Washington or any other
statute of source, to the extent of the indemnity set forth in this paragraph.
In the event that Seller is successful in proving that the foregoing indemnity
is limited by ROW 4.24.1 15, Seller shall defend, indemnify and hold harmless
the Indemnitees to the full extent allowed by RCW 4.24.1 15.
b. Indemnification. Performance of Seller or Subcontractor. Seller shall defend,
indemnify, and hold harmless the Indemnitees from and against all actions and
claims, including attorneys' fees and other costs of litigation related thereto,
involving or in any way relates to establishing the right to indemnification,
which right arises out of or in any way relates to Seller's failure to perform
any of its obligations under the Contract or to any Subcontractor's failure to
perform any of its obligations under the Contract or its subcontract.
c. Subcontractor Indemnification. If any Subcontractors or their employees will
have a presence on Buyer's premises in connection with the performance of the
Work, Seller shall require each Subcontractor to provide an indemnity
enforceable by and for the benefit of the Indemnitees to the same extent require
of Seller under paragraph 21 a, "Indemnification, Negligence of Seller or
Subcontractor."
22. SELLER'S INSURANCE
a. Commercial General Liability. Throughout the period when work is performed
and until final acceptance by Buyer, Seller shall carry and maintain, and ensure
that all Subcontractors carry and maintain, Commercial General Liability
insurance with available limits of not less than One Million Dollars
($1,000,000) per occurrence, for bodily injury and property damage combined.
Such insurance shall be in a form and with insurers acceptable to Buyer and
shall contain coverage for all premises and operations, broad form property
damage, and contractual liability (including, without limitation, that
specifically assumed under paragraph 21.a herein). Seller shall cause the
indemnitees to be named as an additional insured, but only to the extent of the
indemnity set forth in section 21.a. Such insurance shall not be maintained on a
per project basis unless the respective Seller or Subcontractor does not
maintain blanket coverage.
b. Automobile Liability. If licensed vehicles will be used in connection with
the performance of the Work, Seller shall carry and maintain, and ensure that
any Subcontractor who uses a licensed vehicle in connection with the performance
of the Work carries and maintains, throughout the period when Work is performed
and until final acceptance by Buyer, business Automobile Liability insurance
covering all vehicles, whether owned, hired, rented, borrowed, or otherwise,
with available limits of liability of not less than One Million Dollars
($1,000,000) per occurrence combined single limit for bodily injury and property
damage.
c. Workers' Compensation. Seller shall carry and maintain, and ensure that all
Subcontractors carry and maintain, insurance in accordance with the applicable
laws relating to Workers' Compensation covering all of their respective
employees working on or about Boeing premises. If Buyer is required by any
applicable law to pay any Workers' Compensation premiums with respect to
employee of Seller or any Subcontractor, Seller shall reimburse Buyer for such
payment.
d. Certificates of Insurance. Prior to the commencement of the Work, Seller
shall provide for Buyer's review and approval Certificates of Insurance
reflecting full compliance with the requirements set forth in Paragraphs 22.a,
Commercial General Liability; 22.b, Automobile Liability; and 22.c, Workers'
Compensation, as applicable. Such certificates shall be kept current and in
compliance throughout the period when work is being performed and until final
acceptance by Buyer, and shall provide for thirty (30) days advance written
notice to Buyer in the event of cancellation. Failure of Seller or any
Subcontractor thereof to furnish Certificates of Insurance, or to procure and
maintain the insurance required herein, or failure of Buyer to request such
certificates, endorsements, or other proof of coverage shall not constitute a
waiver of the respective Seller's or Subcontractor's obligations hereunder.
e. Self-Assumption. Any self-insured retention, deductibles, and exclusions in
coverage in the policies required under Article 22, shall be assumed by, for the
account of, and at the sole risk of Seller or the Subcontractor which provides
the insurance and to the extent applicable shall be paid by such Seller or
Subcontractor. In no event shall the liability of Seller or any Subcontractor be
limited to the extent of any of the minimum limits of insurance required under
Article 22.
23. GENERAL PROVISIONS
a. Severability. If any provision of this Contract shall be held by a court of
competent jurisdiction to be illegal, invalid, or unenforceable, the remaining
provisions shall remain in full force and effect.
b. Non-waiver. Any failure of Buyer to enforce any provision of this order shall
not constitute waiver of such provision or prejudice the right of Buyer to
enforce such provision at any subsequent time. No such provision shall be deemed
waived unless the waiver is in writing and signed by authorized representatives
of Buyer and Seller.
c. Publicity. Seller will not, and will ensure that Personnel will not, (a) make
reference to this Contract (including any Purchase Order) or Seller's or
Personnel's relationship with Buyer in connection with any form of promotion or
public announcement or (b use, or cause of permit to be used, the Boeing name or
any Buyer trademark or service mark in any form of promotion or publicity
without Buyer's prior written approval. Buyer is, however, authorized to
<PAGE>
refer to this Contract and any relevant Purchase Order to the extent reasonably
necessary to solicit and employ Personnel.
d. Survival. All indemnities, warranties and representations made under this
Contract, and all accrued obligations under the clause entitled "Proprietary
Information" will survive cancellation or termination of this Contract.
Cancellation or termination of this Contract will not affect operation of those
provisions of this Contract which, by their terms, survive or are required to
survive in order to effectuate the intent of the parties, as reflected by this
Contract.
e. Rights and Remedies. Except as limited under this Contract, the rights and
remedies afforded to each party under this Contract are in addition to any other
rights or remedies, at law or in equity, or otherwise.
f. Solicitation or Recruitment. Seller shall not in any way solicit or recruit
personnel to meet the requirements of this Order until this Order has been
signed by both parties.
9. Agent for Process. Seller shall appoint an agent for the service of legal
process in the State of Washington. Such obligation shall continue beyond the
termination or cancellation of this Order.
h. Approval and Payment. Seller understands and agrees that Boeing approval and
payment of any of Seller's invoices against this Order is not to be construed as
any type of acceptance of the prices/rates included thereon. Payment of Seller's
invoices shall be subject to adjustment for any amount subsequently found to
have been improperly invoiced.
i. Audit Rights. For the purposes of verifying sums and rates invoiced by
Seller, Seller agrees to retain, until three years after final payment under
this Order, all books, documents, papers, records, etc., pertaining to all
transactions hereunder. Seller further agrees that, during this time, Buyer
shall be granted access to and have the right to audit any and all such
information during normal working hours. Buyer's standard audit procedure for
any given Order will consist of the following:
(1) A random invoice sampling of at least five (5) percent;
(2) The determination of an error rate, if any; and,
(3) The calculation of any adjustment amount by applying the percentage error
rate to the total current aggregate dollar expenditure figure for the entire
time period in question, and then adding appropriate freight and tax
considerations.
j. Accessory Equipment. Seller or Seller's personnel shall provide all equipment
and items necessary to provide services under this Order.
k. Gratuities. Neither Seller nor its employees, agents or representatives shall
offer or extend any gratuities, such as gifts, entertainment, or personal
discounts, to any of Buyer's employees regardless of the purpose or intent of
the offer. Any question on this policy may be referred to the Group Manager,
Commodity Procurement Group, 155 Materiel, The Boeing Company, P.O. Box 3707,
M/S 3U-AA, Seattle, WA 98124.
I. Vacations. Seller's personnel will request and schedule vacations in advance
with the cognizant Boeing supervisor. All vacations must be approved by Boeing.
m. Purchase Order Value. The dollar allotment on the face of this order in the
space designated "Unit Price" is for buyer's budget purpose only and represents
no guarantee commitment for future purchase requirements. Any estimate or other
representation of future purchase requirements provided to Seller by Buyer is
not to be considered or relied upon as an indication of Buyer's actual purchase
requirements.
n. Terminated for Cause. Contract labor personnel terminated for cause cannot
reapply for contract labor or direct hire for a period of 18 months.
o. Badging. Time needed for Badging and Rebadging of Seller's personnel will not
be compensated by Buyer.
p. Time Records. When Boeing's Standard Attendance and Labor Collection System
(SALCO) or Employee Timekeeping System (ETS) is used, SALCO or ETS will be the
only official record of the hours Seller's personnel worked at Boeing. Any
differences between Boeing SALCO or ETS and hours submitted by Seller must be
approved and corrected in SALCO or ETS before any additional payments will be
made by Boeing.
24. CONFLICT OF INTEREST
A completed "Government Conflict of Interest Questionnaire" must be forwarded
along with the Contract individual's resume when submitting candidates for
consideration.
25. ETHICS
A copy of the Boeing Business Conduct Guidelines booklet will be distributed to
all Seller personnel assigned to The Boeing Company.
26. PROCUREMENT INTEGRITY
Seller understands and agrees that it is acting solely on its own and for its
benefit, and in no way as a representative or agent of Buyer, in recruiting
individuals to perform services under this Contract. Moreover, Seller agrees to
comply with the Procurement Integrity Provisions of the Office of Federal
Procurement Policy Act of 1988 (The Act), 41 U.S.C. 423, and its implementing
regulations, FAR 3.104 et seq. Seller shall reimburse Buyer, by contract price
adjustment or otherwise, for any damages incurred by Buyer for any violation of
The Act which is caused by Seller. Seller agrees to hold Buyer harmless from and
indemnify Buyer for all costs, expenses, and
<PAGE>
offsets that Buyer may incur as a consequence of violations of The Act which are
caused by Seller. The rights and obligations set forth in this clause shall
survive completion of, final payment under, or termination of this Contract.
27. INFRINGEMENT
Seller shall defend Buyer and Customers against all claims and proceedings based
upon actual or alleged infringement of any patent or copyrights by any Work or
based upon actual or alleged misappropriation or wrongful use of any proprietary
or confidential information involving any Work, and Seller shall hold them
harmless from any resulting losses, liabilities, damages, costs and expenses.
Seller shall be notified of such claims or proceedings with reasonable
promptness. Seller's obligations under this clause shall not apply to the extent
any Work are manufactured pursuant to detailed designs furnished by Buyer or to
any infringement arising from the use or sale of Work in combination with items
not furnished by Seller if such infringement would not have occurred from the
use or sale of such Work solely for the purpose for which they were designed or
delivered to Buyer. Seller's obligation under this clause shall extend to the
U.S. Government only if and to the extent Buyer is obligated or liable to the
U.S. Government.
28 GOVERNING LAW
This Contract shall be construed under and governed by the laws of the State of
Washington, without regard to conflict of law provisions. The prevailing party
in any litigation arising out of this Contract shall be entitled to recover its
reasonable attorneys' fees and costs from the losing party.
29 COMPLETE AGREEMENT
This Contract contains the complete and exclusive statement of the terms of the
Contract between Buyer and Seller with respect to the Work, and supersedes and
merges any prior or contemporaneous agreements, commitments, proposals,
representations or communications, oral or written, with respect to the Work.
ATTACHMENT A ASSIGNMENT AND POWER OF ATTORNEY
WHEREAS, the Boeing Company ("Boeing") has engaged (Company) to act through
certain of its employees, subcontractors, and/or employees of subcontractors
(Personnel) in the performance of services for Boeing, and such services may
involve the creation of certain works of authorship (Works).
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Company hereby sells, assigns and transfers to Boeing, and
to Boeing's lawful successors and assigns, its entire right, title and interest
in and to the Works, together with the right to register the copyrights
(Copyrights) therein, the Works and the Copyrights to be held and enjoyed by
Boeing as the assignee for the use and benefit of itself and its successors and
assigns as fully and entirely as the same would have been held and enjoyed by
the Company had this assignment not been made.
FURTHER, Company grants to Boeing an irrevocable special power of attorney for
the limited purpose of perfecting the formal assignment of the Copyrights
through the execution and recording of such instruments as are reasonably
necessary for that purpose, including but not limited to recordable assignment
documents, copyright registration applications, UCC security interest
recordings, and the like.
Executed at SEATTLE, WA this 5/TH/ day of AUGUST 1 996
CORPORATE SEAL
/s/ Kendall Kunz VP
(Company)
STATE OF WASHINGTON )
) Ss.
COUNTY OF KING )
On this day personally appeared before me Kendall W. Kunz, to me known to be the
individual described in and who executed the within and foregoing instrument and
who acknowledged that he/she is authorized to execute the foregoing instrument
on behalf of ARIS Corporation and affix its corporate seal thereto, and who
further acknowledged that he/she executed the foregoing instrument as his/her
free and voluntary act and deed, for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this 15th day of August 1996
Norbert W. Sugayan Jr.
Notary Public in and for the
State of Washington
residing at 351 SW Forest Dr., Issaquah, WA 98027
My commission expires February 1, 1999
[Notary Public Seal for above Notary Public]
ATTACHMENT B
ACKNOWLEDGEMENT, ASSIGNMENT, AND POWER OF ATTORNEY
<PAGE>
Acknowledgement. The undersigned person (Personnel) acknowledges and agrees that
(a) he/she is an employee (or a subcontractor or an employee of a subcontractor
of _________________ (Company) and has been assigned to perform services under
an agreement (Agreement) between Company and The Boeing Company (Boeing), (b)
Company requires him/her to comply with the requirements of the clause entitled
"INTELLECTUAL PROPERTY" from the Agreement, (c) he/she has reviewed,
understands, and agrees to perform all of the obligations described in this
clause as an employee of Company, (d) his/her assignment to perform services may
involve the creation of certain works of authorship (Works), and (e) any
copyrights subsisting in the Works are to be assigned to Boeing.
Assignment. For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Personnel hereby sells, assigns and transfers to Boeing and
its lawful successors and assigns, he's/her entire right, title and interest in
and to the Works, together with all copyrights in the Works and all of the
exclusive rights under said copyrights, and the held and enjoyed by Boeing as
the assignee for the use and benefit of itself and its successors and assigns as
fully and entirely as the same would have been held and enjoyed by Personnel had
this assignment not been made.
Power of Attorney. Boeing is hereby granted an irrevocable special power of
attorney for the limited purpose of perfecting this assignment by executing such
instruments as are reasonably necessary therefor, including by not limited to,
recordable assignment documents, copyright registration applications, UCC
security interest recordings and the like.
Executed at Seattle, WA this 15th day of August 1996
CORPORATE SEAL
Brad Marshall
(Contractor)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me Brad Marshall, to me known to be the
individual described in and who executed the within and foregoing instrument and
acknowledged that he/she executed the foregoing instrument as his/her free and
voluntary act and deed, for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this 15th day of August 1996
Norbert W. Sugayan Jr.
Notary Public in and for the
State of Washington
residing at 351 SW Forest Dr., Issaquah, WA 98027
My commission expires February 1, 1999
[Notary Public Seal for above Notary Public]
<PAGE>
EXHIBIT 10.52
[LOGO OF ARIS] ARIS CORPORATION
15204 NW Greenbrier Pkwy,
Ste A-1
Beaverton, OR 97006
(503)614-6965
(503)614-8328 fax
[FORM OF EDUCATION SERVICES AGREEMENT]
1. EDUCATION COURSES TO BE PROVIDED:
ARIS Corporation shall provide training as follows:
COURSE #: A-190
COURSE TITLE: Developer/2000 Forms 4.5
CONTACT:
PHONE:
COMPANY: Nike, Inc.
ADDRESS: One Bowerman Drive
Beaverton, OR 97005-3005
START DATE:
# OF DAYS: FIVE DAYS
TIME: 9:00am
# STUDENTS: 12
The Customer agrees that course prerequisites and content have been reviewed.
2. COMPENSATION FOR SERVICES:
Customer shall pay ARIS Corporation the sum of $1,700.00 per training day
scheduled for a maximum of twelve students. Each additional student beyond
twelve will be charged at a rate of $65 more per student per day. The student
count should not exceed 16. Classroom will be provided at ARIS facility at a
cost of $290 per day. Partial days shall be compensated at the full day rate if
the day's instruction cannot be completed due to failure of Customer's equipment
or facilities; or in the event of cancellation or delay at the Customer's
request. The Customer shall reimburse ARIS Corporation for any associated
travel costs, to include lodging, meals, and airfare or mileage where
applicable. In the event of cancellation, Customer must provide written
notification to ARIS Corporation at least 30 (thirty) days in advance of class
start date. Any cancellations received with fewer than 30 days notice will
result in a billing for 50% of the anticipated charges.
3. INSTRUCTIONAL MATERIALS
ARIS Corporation will provide course instructional materials to each student at
no additional cost.
4. INVOICING:
ARIS Corporation requires a purchase order for training at least 15 business
days in advance of class start date; customer will be invoiced upon completion
of described services. Payment on invoices is due in full within thirty days
after the date of invoicing. Unpaid balances will accrue interest at the rate
of 1.5% per month compounded monthly.
5. INSTRUCTION FACILITIES AND EQUIPMENT:
Instruction facilities will be provided by ARIS Corporation, who shall be
responsible for providing an operating computer system with a minimum one work
station per student, necessary software, and appropriate facilities for $175 per
computer for the duration of the class.
6. COURSE EVALUATION & CERTIFICATION:
ARIS Corporation will ask all students to complete evaluations at the end of
each class, and certificates of completion will be sent following conclusion of
the course. ARIS shall not be required to test students or provide written
reports or evaluations of the students' performance.
7. FULL AGREEMENT; APPLICABLE LAW; DEFAULT PROVISIONS:
This written Agreement constitutes the full Agreement of the parties and there
are no additional Agreements except as set forth herein. In case of any legal
action brought to enforce any part of this Agreement, the prevailing party shall
be entitled to its attorney's fees and costs. The parties agree that venue for
any action between them pertaining to this Agreement shall be in Superior Court
for Washington County, State of Oregon.
As above referenced "Customer", please indicate your agreement to these terms
and conditions by signing your acceptance and returning to ARIS Corporation.
Thank you for giving us the opportunity to serve you.
<TABLE>
<S> <C>
ARIS Corporation CUSTOMER
________________________________________ _________________________________________
Jeff Walker, Education Sales Authorized Representative for: Nike, Inc.
Date:____________________________________
</TABLE>
<PAGE>
EXHIBIT 11.1
ARIS CORPORATION
Computation of Net Income per Common and Common Equivalent Share
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------ QUARTER ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 826,000 $2,010,000 $2,014,000 $1,044,000
========== ========== ========== ==========
Applicable common shares:
Weighted average outstanding
during the period (1) 4,200,000 6,777,432 6,793,000 6,713,730
Cheap stock shares issued 1,045,900 1,045,900 1,045,900 1,045,900
Weighted average outstanding
stock options (2) 788,235 22,244 101,238 111,471
Cheap options granted (3) 641,435 641,435 641,435 641,435
---------- ---------- ---------- ----------
Weighted average number of
common and common share
equivalent shares outstanding 6,675,570 8,487,012 8,581,573 8,512,536
========== ========== ========== ==========
Net income per common share $0.12 $0.24 $0.23 $0.12
========== ========== ========== ==========
</TABLE>
(1) Excluding cheap stock shares issued during the period.
(2) Based on the treasury stock method excluding cheap options granted.
(3) Based on the treasury stock method.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 21, 1997 relating
to the consolidated financial statements of ARIS Corporation, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1996
listed under Item 16(b) of this Registration Statement when such schedule is
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the use in the Prospectus constituting part of this Registration
Statement on Form S-1 of our report dated March 14, 1997 relating to the
financial statements of SofTeach Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated and Pro forma Combined Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated and Pro forma Combined
Financial Data."
PRICE WATERHOUSE LLP
Seattle, Washington
May 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1997
<CASH> 1,241 177 485
<SECURITIES> 1,250 1,396 1,372
<RECEIVABLES> 3,037 5,897 8,612
<ALLOWANCES> 279 300 350
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 5,560 7,794 12,308
<PP&E> 1,561 3,354 6,728
<DEPRECIATION> 359 837 2,645
<TOTAL-ASSETS> 6,843 12,956 19,822
<CURRENT-LIABILITIES> 1,534 4,033 12,557
<BONDS> 0 1,500 5,887
0 0 0
0 0 0
<COMMON> 419 1,943 3,224
<OTHER-SE> 4,223 6,267 3,391
<TOTAL-LIABILITY-AND-EQUITY> 6,843 12,956 19,822
<SALES> 0 0 0
<TOTAL-REVENUES> 14,751 26,898 10,409
<CGS> 7,218 13,446 4,949
<TOTAL-COSTS> 4,522 10,206 3,751
<OTHER-EXPENSES> (97) (80) 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (18) (35) 42
<INCOME-PRETAX> 3,096 3,361 1,667
<INCOME-TAX> 1,086 1,347 623
<INCOME-CONTINUING> 2,010 2,014 1,044
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,010 2,014 1,044
<EPS-PRIMARY> .24 .23 .12
<EPS-DILUTED> 0 0 0
</TABLE>
